- Date : 27/11/2018
- Read: 10 mins
This article will walk you through a roadmap of where you should ideally be, financially, in every decade of your life – your 20s, 30s, 40s, 50s, and 60s.
Investment is an area that women should not ignore just because they are women. In fact, they should invest precisely because they are women: financial planning is more crucial for them because of career breaks that can follow later in life due to reasons such as pregnancy, childbirth, taking care of the elderly, or husband’s job transfer. Granted, this is not always the case, but it definitely is a common occurrence.
So, if you are a woman, think of investing as early as possible. Your planning should involve charting a roadmap of where you should ideally be, financially, in every decade of your life – your 20s, 30s, 40s, 50s, and 60s. You should also learn the basics of finance so you can invest and build a ‘cushion’ for your golden years.
At the outset, please note that any investment strategy works irrespective of the investor’s gender; it’s the planning and the risk one is willing to take that matters. This risk appetite differs from person to person and case to case basis.
When you start investing, please know why you are investing – that is, set goals and the time frames to meet these: short-term goals (less than three years), medium-term (three to eight years), and long-term (more than eight years). Remember, saving for retirement takes place across decades, but that does not make shorter goals (such as saving for a down payment on a home) any less essential or less challenging.
Also, get a fix on your risk horizon and diversify your funds based on your risk appetite. As some investments may carry risks, take the help of financial experts. Finally, shape your life after keeping aside the money to be saved/invested – that’s the Warren Buffett way; people usually spend on themselves first and then look at what’s left over as their ‘savings’; you do the opposite, and cut corners if need be.
In your 20s
Your 20s is the time in your career (and life) to fix both your long-term and short-term targets; the earlier you set short-term milestones, the easier it is to secure your retirement as you go along, and also to plan in your 40s, 50s, and 60s. Your investments, therefore, should be planned in a way that they yield good returns at the right time, as per your targets – your wedding, an apartment etc.
Equity mutual fund: At this age, investing in equity mutual funds is a good idea, primarily because professionals manage your money for you, and you are probably still learning about investments. Its other advantages are:
- Flexibility: You can invest any amount (if you take the SIP route, you can put in as low as Rs 500 every month for the prescribed time period)
- Diversification: Mutual funds are the ideal way to achieve diversification
- High liquidity: You can liquidate the investment during emergencies; it will not take more than five business days
- Transparency: You know where the fund is being invested
- Good returns: If you stay invested for more than five years, the amount might generally expand at 12-18% CAGR
- More profitable: Despite the re-introduction of LTCG tax on equity mutual funds, such investments still have the potential of outperforming many other equity-related saving schemes
Liquid funds: This is a type of debt mutual fund that invests in highly liquid money market securities (commercial papers, treasury bills, and certificate of deposits) over short periods, with a maturity period of up to 91 days (but can be as short as a day). They offer:
- Higher returns than saving deposits (historically, they have generated 7-8% as against 4% of savings accounts)
- Less fluctuations as they invest in securities with short-term maturity periods
- High worth during high inflation, when as a practice, interest rates are kept high and liquidity is tightened
Subsequently, they are a good alternative to saving accounts; plus they also have taxation benefits. If you have built an emergency fund you can invest it here. Or you can initially invest here, let it grow, and then move it to an equity fund through SIP.
Corporate fixed deposits: Like banks, companies too offer the fixed deposit (FD) scheme, where you deposit money for a fixed period at the offered interest rate. Corporate FDs offer good returns (big banks offer up to 7%, smaller finance banks may go up to 9%, while rates for company FDs range around 9.25%-10.75% depending on its reputation; some small, unknown companies are known to offer up to 15% but avoid them: these could be shady).
The biggest advantage of investing in FDs is guaranteed returns. Corporate FDs deposit (from good, AAA-rated companies) score higher than bank deposits given the equivalent credit rating and a higher rate of interest, but bank FDs with lock-in periods of 5-10 years enjoy tax exemptions under section 80c. In your case, the best move is to invest in a corporate FD of a short tenure.
National Savings Certificate: Finally, the National Savings Certificate (NSC), a government investment scheme from the postal department with a five-year tenure that allows subscribers to save on income tax. There is no maximum limit on NSC purchase, and investments of up to Rs 1.5 lakh enjoy income tax exemption under Section 80C. NSCs earn a fixed interest rate of 8.1% per annum, which is added back as investment and compounded annually. On maturity, you may reinvest it here or in SIPs.
Equities: Consulting your financial planner for lucrative stocks.
In your 30s
Though there are exceptions, most Indian women tend to get married by the time they turn 30, or enter their early 30s. This is the time for new responsibilities, a family, maybe a child in the very first year of marriage. Stay invested in mutual funds, preferably by SIP; continue with NSCs and other government tax-saving schemes if you can; never miss a good corporate FD; and start thinking of taking a joint home loan as this will give you higher eligibility. Importantly, if you have not taken health insurance till now, it is definitely in order once you have a family.
Health plan: For a health insurance policy, there are some basic parameters you should consider before making a choice; while the insurer will be looking at your age, health, and medical history, you should check if the insurance firm offers these:
- A good network of cashless facilities (very important as it leaves your savings intact)
- Family floater plans to ensure coverage for your family
- Fixed benefit plans that cover the cost of hospitalisation as well as surgery (such plans provide a fixed payout for hospitalisation per day, as well as a fixed sum for different categories of surgery);
- Sub-limits and co-payment clauses (these are irritants; the sub-limit is a monetary cap on specific ailments that the insurer places on health insurance claims, meaning it won’t pay the cost for some illnesses in full if the total crosses the cap; similarly, the co-payment (co-insurance) clause means the insurer will bear only part of the cost);
- Customer service. This goes without saying!
- Claim settlement ratio: Compare claim settlement ratio of the various health insurance provider. It means the number of claims paid by the insurer against the claims received.
- Additional benefits such as free checkups, premium discounts for maintaining a healthy lifestyle, No Claim Bonus, OTC discounts/offers, etc.
Sukanya Samriddhi: This scheme comes into play only if you have a daughter; it is a good scheme for people with a girl child below the age of 10. An account can be opened in her name at any bank (public/private) or post office, and will continue for 21 years; the maximum amount that can be deposited in a year is Rs 1.5 lakh, the minimum being Rs 250. This is eligible for tax deductions, fetching a healthy 8.1%. (If you have a son, start saving specifically for him separately; the SIP way is good).
Gold ETF: Now that you are married, you may be tempted to buy some gold. Why not stick to what your parents in all probability gave you, and buy gold ETFs for yourself instead of physical gold? Gold ETF is a type of exchange-traded fund whose underlying asset is the gold price in India. Each unit of the gold ETF is worth one gram of the metal; it is traded like a stock on a stock exchange, which makes it an attractive alternative to an investor (unlike the physical metal, which is hard to sell during emergencies). It is a good investment that can beat inflation in the long term. Besides, gold is a less volatile asset than equities.
Equities: Keep consulting your financial planner for lucrative stocks.
In your 40s
You are now in your 40s; you will earn a salary till about 60; you own a home and have children who will be getting ready for higher studies in this decade. You have two main objectives: (a) meet certain big-ticket expenses such as funding an expensive course for your children or their marriage; and (b) create a nest egg that will meet your expenses after retirement.
For the first, think education loan (if you have not saved enough towards your child's education)– there is a tax benefit for this under Section 80E; if you can’t get it, you can take out a loan against your home or FDs, but never touch your retirement fund to fund your child’s education because it will be difficult to rebuild it. In fact, you need to add to those savings, which is your second objective – build a nest egg. For this, you may consider:
- Maximising your EPF investment
- Not only staying invested in equity mutual funds, but putting aside at least 15% of your take-home salary for this
Equities: No need to stay away from stocks.
In your 50s
Your retirement will be upon you soon, and now you should gradually begin relocating your risky investments to safer avenues such as debt mutual funds. These invest in fixed income securities, both short-term and long-term, issued by companies and the government. These securities include treasury bills, corporate bonds, government securities, and other fixed income securities.
They are low-risk, and there are tax benefits: dividends received from a debt fund are tax-free, though funds held for more than three years are considered long-term and taxed at 20% after indexation; indexation takes inflation into account and reduces the tax on capital gains. No TDS is deducted on gains. All in all, debt funds are an ideal investment option for investors with a low-risk appetite, or for someone trying to build a retirement fund.
In your 60s
Now that you are retired and your children are settled, sell all unnecessary assets – like the second car; this can help you reach your retirement savings goals sooner. Also, plan your estate, and if you don’t already have a will, get one drawn up as at the earliest. After having spent your whole life organising the perfect financial plan, you don’t want your children or grandchildren bickering among themselves over what you leave behind, do you?
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or insurance or tax or legal advice. You should separately obtain independent advice when making decisions in these areas