TomorrowMakers

Are you ‘recklessly cautious’ when it comes to saving money? If your answer is ‘yes’, this article is for you.

Overcautious when it comes to savings? Here's how to invest your money better

Women are considered more cautious than men and this reflects in their investment style too. According to a survey by Scripbox, a staggering 58% of women prefer to put their money in fixed deposits (FD), public provident funds (PPF), or let it idle in their savings accounts. 

Women tend to lean towards these avenues since they involve a low risk appetite. While these instruments are safe, they do not provide much in terms of returns when compared to other avenues such as mutual funds.  

Another reason is access. About 44% of the women polled said easy access to their money is an important factor when it comes to choosing an investment method. Fixed deposits and savings accounts give them this access.  

The survey revealed that women do invest in mutual funds, but their number is very low – only around 15%. Clearly, they are not comfortable investing their money where risk is involved or where they may have less liquidity.

The survey also provided insights into how saving patterns and life goals varied by age group. Among millennials, putting aside money for travel was a top priority, while non-millennials chose to create a retirement fund and save money for their children’s education. 

Non-millennials also emerged as more mature investors. It was revealed that although 33% of them consider FD, PPF, and life insurance important, 26% were of the opinion that mutual funds can help them attain their financial goals.

Related: A millennial woman’s guide to saving big on monthly bills

What was worrying is that many women did not come across as confident while handling money. They are reluctant to take charge of their finances, leaving financial planning to male members of the family. As per the survey, only 28% women were confident of their approach to financial planning. 

While 15% of women prefer to leave it to other family members, 44% said they would like help from others to plan better. If you belong to the latter group, read on for a list of ways to help you better utilise your funds and get higher returns.

Act on the power of compounding

Compound interest allows you to earn interest on your interest. For instance, if you invest Rs 10,000 monthly in a debt instrument that yields 7% per annum, after the first year your interest income will be Rs 4648.75. However, thanks to the power of compounding, that same interest income will snowball to Rs 5.41 lakh over a 10-year period.

What this essentially means is that the earlier you start your investment journey, the more wealth you can accumulate. You can check the best investment options by comparing fixed deposit rates from different banks and PPF interest rates.

One thing to keep in mind is that FDs are relatively liquid. You can easily withdraw your money in case of an emergency, but this is not the case with recurring deposits and PPF withdrawals. 

Automate your investments

An automated investment plan is great strategy to bring in financial discipline. Money from your salary account can be invested on a monthly basis in a bouquet of investment plans across categories such as recurring deposits, mutual fund systematic investment plans (SIPs), direct equity, gold funds, insurance, etc. as per a preset portfolio strategy. This not only ensures smart deployment of your hard-earned money, but also allows you to leverage compounding for debt investments and average out the purchase cost for equity-based investments.

Related: Have a busy life? Here’s how to make time for your finances 

Invest in annuities

Women live longer than men, but also have shorter careers. This means they have less time to accumulate resources for a comfortable and independent life after retirement. Annuities can provide a fixed income stream that takes care of your sunset years. The annuity receivable depends on your contribution. You can use a retirement planning calculator to assess how much you will require for living expenses, groceries, healthcare, etc. and plan your contribution accordingly.

Boost gains with equity

While debt investments are a safe bet, they are heavily taxed too. You can use a fixed deposit calculator to see that the real returns on most debt investments barely cover inflation, making your real returns almost nil. While equity does present a certain risk, over the long term the risk tends to average out, providing significantly higher returns. 

A smart strategy is to follow the age-appropriate asset allocation mix. You simply deduct your present age from 100 and the balance will be your asset allocation percentage to equities. So, for a 28-year-old woman, about 72% of her long-term investments should be geared towards equity-based products.

Your ideal investment portfolio needs to factor in your risk appetite, life goals, and timelines. There is no one-size-fits-all strategy, but you should aim for a higher ratio of equity at a younger age when you can afford to take more risk. If you are millennial, take this quiz to find out how many of these savings tips you are aware of. 

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.

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