TomorrowMakers

Since time immemorial, women have been known to save money and jewellery to ensure their financial security. However, the shift to investing is certainly turning out to be the need of the hour.

Saving is great! But it's time women need to start investing

There’s been a lot of talk on the prevailing gender pay gap across industries globally. Women are generally paid less than their male counterparts. This ultimately affects their lifestyle and standard of living. However, the gender gap is not the only issue that comes in the way of financial equality. There also remains an alarming gap between men and women when it comes to investments. 

This article talks about the current investment statistics for women and how women can invest more to bring about a change. 

Investment vs saving: What to know about the present situation

In 2019, DSP Winvestor Pulse had reported that only 33% of women take independent investment decisions, as opposed to 64% of men. This woeful figure highlights the low number of independent women investors in the country. 

Women have been great savers for centuries. Older generations stashed cash under the mattress or under piles of clothes, whereas today’s women carefully save as much of their salary as they can in the bank. The bottom line is that women have always been good at saving money. Their intuitive nature and the ability to plan well for every contingency allowed them to inculcate the habit of saving from a young age. 

However, given the current climate of high inflation, low job security, and societal inequalities, the need to invest is far more pronounced than the need to save. 

Related: Are international investments the right choice for women?

Why do women need to invest and not simply save?

Women are steadily joining the workforce and becoming financially independent. But it is important to understand that a salary is not always enough to cater to various financial requirements. Saving money in a bank account offers little or no prospect for growth. Given the low interest rates, this money sits more or less idle and loses its purchasing power in the face of inflation. However, investing can help grow this money over time. 

Here’s a chart of returns from a fixed deposit over time, for an investment of Rs. 1,00,000:

Rate of interest Term Interest earned Total value
6.5% 3 years Rs. 21,341 Rs. 1,21,341
6.5% 5 years Rs. 38,042 Rs. 1,38,042
6.5% 10 years Rs. 90,556 Rs. 1,90,556

Here’s a chart of returns from a savings accounts over time, for a minimum balance of Rs. 1,00,000 

Rate of interest Term Interest earned Total value
3.5% 3 years Rs. 3,749.28 Rs. 1,10,871.78
3.5% 5 years Rs. 4,016.33 Rs. 1,18,768.63
3.5% 10 years Rs. 4,770.13 Rs. 1,41,059.84

While investing in an FD offers high returns over a 10 year period, money parked in a savings account shows little growth. When compared to the rising rate of inflation, the money further loses its value. 

Investing helps to counter inflation that can erode the value of money in the future. For example, Rs. 10,000 will amount to the value of Rs. 17,908 with a 6% inflation rate in ten years. This implies that if a mobile phone can be purchased for Rs. 10,000 today, the same brand and model will cost Rs. 17,908 ten years from now.

Which investment offers the best returns? 

Here’s a table highlighting returns from various investment tools to help pick the right investment method:

  ELSS (Equity-
Linked Savings Scheme)
Fixed Deposit Public Provident Fund Mutual Fund
Average returns 11% - 15% 6.50% to 8.25% 7% to 8% Equity mutual funds can offer 12% to 15% returns, while debt funds can give 7% to 9% returns, subject to market conditions.

How can women make a shift from saving to investing?

It is important to proactively move to investing rather than opting for low-return savings options. The dependence on saving is primarily because of inadequate knowledge of the investment world. Women can overcome this by getting in touch with a financial advisor. A professional can guide women to make the right investments as per their risk appetite and time horizon, and help them earn high returns over time. They can also read financial journals, newspapers, etc. or subscribe to online newsletters to increase their investing acumen. To understand the importance of hiring a financial advisor read this article — Financial advisor or no financial advisor: How does it make a difference?

How much money does one need to invest? 

The good thing about investing is that there are generally no rigid fixed limits. Women can pick different instruments according to their income and budgetary limitations. For instance, mutual funds provide many investment opportunities with Systematic Investment Plans (SIPs) that start from a minimum investment of as little as Rs 100 per month. This makes it easy to get started. 

Some financial experts recommend putting aside 10%–15% of one’s monthly income for investments. This is a good way to ensure financial security for the future and live a comfortable life in the present. But ultimately the choice lies with the investor. As a woman, you should set an investment strategy based on your unique needs and life stage. 

Related: 5 Women-specific financial products you must take advantage of today

Which investment options should women start with?

There are many options such as mutual funds, public provident fund, national pension scheme, insurance investment plans, stocks, bonds, and more. A financial advisor can help you choose the right product as per your goals and time frame.

When is a good time to start?

The best time to start investing is at the earliest. Investments work on the power of compounding, so the longer the timeline, the higher the returns. 

Related: Where can the Indian woman invest her money smartly?

What can women achieve with investment?

Investments can bring women a host of benefits: 

  • Financial security and equality. While it may take time to bridge the gender income gap, women can invest more to overcome the difference with smart investments. 
  • Investing lets women multiply their money over the years. This adds to their financial freedom and enables them to live a happy and content life. 
  • The increased corpus allows women to leave a legacy behind for their children and safeguard the future of their loved ones. 
  • Investing enables women to save for retirement, thereby making them financially independent in their old age. 

Check out the 6 Reasons to invest in mutual funds and start investing today!