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Leading up to the International Women's Day on March 8, this is the first of a four-part series that talks about how women can invest to achieve their long-term financial goals.
Illustration: Uttam Ghosh/Rediff.com
In today's progressing world, gender discrimination is a taboo, as men and women are equal in every way. You look at various professions like doctors, lawyers, fund managers, CEOs, researchers, designers, software experts etc., women are progressing in every field. But there is a general misconception that men are better when it comes to investments and this is an absolutely incorrect thought!
We must not forget the greatest Indian savers are our grandmothers and mothers, as they have been saving from their household expenditures every month, only to declare these savings as the most desired surprise in needed moments for the family.
Now, before we dive deep into certain investment options, I would like to highlight a few important aspects:
We must build Risk Tolerance, as it is extremely important to have the patience and tolerance toward managing risk. Beating the market benchmark returns will require some risk appetite and more importantly the tolerance factor.
Never build a relation with money, as in that case the investments may not be invested wisely and will primarily find way towards very low risk products like fixed deposits.
Money makes money in long term, as the power of compounding brings a huge upside to your investments. Hence, understanding the power of compounding and starting early to invest will be a right decision.
Like we define our goals in life, we need to define our financial goals too as it helps us in identifying our risk-taking ability, choose prudent investment products and the tenure of our investments.
Are you reading enough? Reading journals, newspapers, watching financial news channels, etc., will constantly enhance your financial world awareness and help you in making informed investment decisions.
You must not clone what works for your friend or your colleagues or a family member! What works for them may not always work for you! Hence, defining your financial goals is critical to understand that one size doesn't fit all. But what I do recommend is to engage in healthy discussions with people of trust for constantly upgrading your knowledge on investment opportunities.
Here are some investment options that women can look forward to:
Public Provident Fund
A public provident fund (PPF) account is a long-term investment option that falls under Exempt-Exempt-Exempt (EEE) category. It provides income tax deduction u/s 80C for the amount invested (subject to a limit of Rs 1.5 lakh a year).
Interest received is exempt from tax and there is no tax on the amount received on maturity of the account either.
In view of the tax benefits offered, many investors open PPF accounts with their bank/post office to build a sizeable corpus. PPF accounts have a lock-in of 15 years.
On maturity, the investor has the option to either to withdraw the proceeds and close the account or continue the account for a block of five years.
National Pension Scheme
The National Pension Scheme is a social security initiative by the Central Government. This pension programme is open to employees from the public, private and even the unorganised sectors with an exception of those from the armed forces. The scheme encourages people to invest in a pension account at regular intervals during the course of their employment.
After retirement, the subscribers can take out a certain percentage of the corpus. As an NPS account holder, you will receive the remaining amount as a monthly pension post your retirement.
Subscribers have the option to open two types of NPS accounts under the same Permanent Retirement Account Number (PRAN) namely Tier 1 and Tier II.
Contributions done to Tier I account are eligible for additional tax deduction benefit of up to Rs 50,000 under section 80CCD (1B), over and above Rs 150,000 u/s 80C.
Mutual Funds through Systematic Investment Plan
Investment in equities is a must but timing the equity market is best avoided. SIPs help take the market timing out of investments.
By following a periodic schedule, they invest at different market levels, which help average out the cost of acquisition.
For a SIP to give best outcomes, it is important to stay invested for the long term.
Mutual Funds through Systematic Transfer Plan
For those who have liquidity already in hand, STP is an efficient tool to invest in equities.
In STP an investor schedules for transfer of a fixed amount of money from Source scheme to Target scheme usually by investing a lumpsum amount into liquid funds and then transferring to an equity fund.
This facilitates optimum utilisation of funds when idle and also yielding benefits through periodical transfers to a growth-oriented fund.
National Savings Certificate
National Savings Certificate is a fixed income investment scheme that one can open with any post office. A Government of India initiative, it is a savings bond that encourages subscribers -- mainly small to mid-income investors -- to invest while saving on income tax.
A fixed-income instrument like Public Provident Fund or Post Office FD, this scheme too is a secure and low-risk product. You can buy it from the nearest post office in your name, for a minor or with another adult as a joint account.
They come with two fixed maturity periods -- five years and ten years. There is no maximum limit on the purchase of NSCs, but only investments of up to Rs 1.5 lakh can earn you a tax break under section 80C of the Income Tax Act.
Employee Provident Fund
The Employee Provident Fund (EPF) is one of the most widely-used investment schemes by the salaried class in the country. The benefits of EPF are extended to all establishments with 20 or more employees.
The tax-free interest and the maturity amount ensure a very good growth of your money. If the PF money continued for a very long period of time, it can help in meeting an employee's requirements including retirement goals.
Post Office Savings Scheme
A post office offers various types of deposit schemes for those who want to invest their money. These are also known as small savings schemes. The USP of these schemes is their sovereign guarantee, i.e., it is backed by the central government. Some of these schemes such as NSC also offer tax-saving benefits under section 80C of the Income Tax Act.
One can look at these schemes considering the safety and protection of their capital. However, returns would be comparatively lower than other market linked investment avenues.
Hence, the above investment options will certainly help you in achieving your investment and financial goals and taking independent decisions as you know the best!
Suren Kochhar is Senior President, Head of Sales and Marketing, YES Asset Management (India) Limited. The opinions expressed in this article are the author's own and do not reflect the view of YES Asset Management (India) Limited.
Next in the series on March 2: Investing for women: Choosing between risk and safety