Investment: What women may want

Titles can go for a six in rediff.com! My titles have been peremptorily modified, for the better I must admit, although the articles have generally been carried in toto. Editorial discretion and editorial licence are used in good measure. So whatever the title that is finally given to this article, for the record, the original one I gave it was What Women May Want.

Hollywood actor Mel Gibson in the movie What Women Want, suddenly develops the ability to read women's thoughts and uses it to his advantage in his career and elsewhere. One of the disadvantages of being a man is that one cannot fathom the exact thought process and emotional mind-map of women despite having known them in different avatars: whether as my mother, my sister, my wife, my grandmothers, any of my numerous cousins and good friends that my working colleagues have become, in a life that has gone through five fairly tumultuous decades and some.

So when Mel Gibson does his thing in the movie mentioned above, my thought goes: 'Hey Buddy! You don't know the half of it!'

This preamble was to acquaint you with the fact that I dare to write about what women want in savings and investment without knowing them too well. I attempt this task with all humility and yet even my halting approach is something that is sorely needed, in my opinion, as not many people have tried to understand what is essential for women for taking care of their own needs and that of their families, especially where these women also meet the family budget wholly or partly.

Let us trace the evolution of women in India as per my limited experience. To start with, most of the women were housewives or 'homemakers,' as they are now termed, and their contribution to the household budget was limited to spending what their husbands would earn.

There are several instances of a woman salting away a portion of the money given to them and using the same for building up assets such as jewellery or just keeping it as cash or even putting it in a chit fund and growing it. This money would be used for an emergency or to meet a part of expenses relating to the daughter's marriage or any such event.

The stereotype of women being financially unaware is so wrong! There is a history of women in Gujarat and even Andhra who would use their dowry or savings to start a cottage industry that would earn them some good pocket money!

As education became a priority for both boys and girls, the legion of working women started growing. Initially however, the women were in careers that were a step below that of their husbands in most cases. A man's ego would never permit him to see his mate as an equal let alone a superior in terms of earning power and position. At this stage, women would only contribute to a small portion of the household budget.

Did I mention the male ego? Even here, most women would quietly salt away a goodly portion of their pay into fixed deposits and PPF and such safe investments. However, with the kind of returns that were available in both, the accumulation used to be substantial, although the corpus itself was not.

All has changed now

All this has changed and instances where the woman earns more than her husband are not uncommon these days. With the growing cost of living and insatiable needs of the family including the pester power children, women are now contributing substantially to the family exchequer. Women are now in high powered jobs and work as hard as men in their careers.

However, even now, the instances of women taking insurance on their lives or making investments in equity and the like are relatively low. My submission is that women should start taking their position a lot more seriously and taking out insurance on their lives is a bold statement of their belief in the importance of their contribution.

Look at it this way. If a man contributes, say, Rs 25,000 to the home and the woman Rs 20,000, does it not follow logically that the woman needs to be insured for a sum almost equal to that of the man. Maybe, my experience is limited, but mostly this is not the case.

In my earlier articles, links for which have been provided at the end of this one, I covered the whole gamut of savings and investment and there was a detailed one on insurance. However, it occurred to me that the approach that women need to adopt may differ somewhat from the conventional one in view of separate requirements.

Financial planning a MUST for women

Let us start with insurance, an essential but unglamorous need. This may be based on the actual contribution of the woman to her household. If a woman contributes say, Rs 10,000 to the home every month and in whatever form, she should be insured to the extent of Rs 20 lakh (Rs 2 million) based on the principle of 200x.

Add anything else, she aspires for her children to have, where she expects to make a contribution. If she desires that she contribute a sum of Rs 3 lakh (Rs 300,000) to each child's education, she should increase the sum assured by Rs 3 lakh. For her personal needs post-retirement, she needs to plan and set aside savings to that extent.

Without being coy about it, we need to be clear that financial planning is a joint venture between husband and wife and even the children, when they are articulate enough and clear about their aspirations.

Women do contribute to the family kitty and demand to be respected for what they do towards this essential requirement. With more equality in education and employment, women occupy positions of importance and power. At the same time, they feel vulnerable and are generally not respected adequately for what they are and what they do.

Multi-tasking between home and work and yet managing to retain their looks by exercising, visiting the beauty parlour, choosing good clothes and all else that it takes, women have a tough life and yet revel in their multi-faceted roles. I have seen women who feel guilty about their work that keeps them away for long periods of time during the day and sometimes days, when they travel.

My sincere advice is: Don't! As only a woman can, she has to manage expectations and kids should be told that for the good life, the Reeboks and the Nikes, the Levis and what have you, Mama has to work and they have to pay the price by managing in her absence.

Teaching children to take pride in doing even mundane household tasks should start at an early age. Only then will they learn the value of work and manage themselves. As an example, in my house, we all take turns in doing the dishes as we prefer to do so and not depend on the maid.

This is done seamlessly and my sons as well as I, all males, have learnt to do the dishes and even do the quality check at the end of it all. My dogs, are the only males exempt from this task!

Women need to understand that they should not overcompensate by buying more toys for their kids. And being a male I have been guilty of underestimating the contributions made by the women in my life -- my mother, my grandmother and my wife, not to mention my sister and my numerous aunts, who have silently pushed me forward in life and taken care of its mundane aspects.

There I got it all out!

My point is women are important financial providers in the modern world and they need to recognise and respect it first so that the rest of the world, mostly male, will follow.

A plan for you!

So here is a small sample of a financial plan for women that recognises their importance and suggests ways and means to create financial independence for themselves and for their families. This will have to be modified in accordance with specific needs.

Any plan has to be tailored for the lifecycle of the person for whom it is created. A woman's lifecycle is akin to that of a man but differs in that there may be breaks in the working life to take care of children in their infancy.

So a good plan will provide for this requirement and allow ebbs and flows in money. As always, there is a need to start young and every woman who aspires for a career, needs to plan for her financial independence as well. Many a time, women stay with their parents and often, they are not required to contribute to the family kitty at that stage. This is a heaven sent opportunity to save and invest for their financial security.

How much better if the girl is able to keep aside some money for her own trousseau and save her hard pressed parents some financial blushes? Even otherwise, the money will go to build her financial independence.

The ideal plan to my mind is one where there is a good balance of risk and return and where liquidity is available for the non-earning intervals. Women are generally risk averse, reasons for which are something to do with a different psyche.

Women have been built physiologically and mentally to accumulate. Now before the ladies reading this article and others supporting them think I am alluding to their being inferior or something to that effect, let me just say that the female of the species has had to feed her offspring and that leads to a tendency to hoard and accumulate food.

In modern days, there is the tendency to accumulate money instead. Hence women tend to save more and also to be more risk averse. Share-brokers say that more women are now investing, but that may merely be a function of increasing population rather than a change in the essential nature of women themselves.

So here is the plan that reflects my perception of women's needs. As with all financial plans, starting early is best. However, even otherwise, this can be adapted for late starters as well.

• The first component is insurance and the sum assured must ideally be 200 times the monthly financial contribution of the lady in question to the household. Never mind how this is to be met. Insurance policies can be tailored to suit the budget and a combination of term and other plans or just term insurance would cover the insurance needs.
• Try as far as possible to keep the budget to 20% of possible savings. Let us now assume that a woman contributes Rs 10,000 to the family kitty every month. She would have to be insured for Rs 20 lakh. Term insurance would cost roughly Rs 4,600 p.a. for a lady of 25 years of age for a 25-year policy or under Rs 400 p.m. At 30 years of age this premium would be Rs 5,800 p.a. or less than Rs 500 p.m.
• This to my mind is a negligible cost to pay for protection. Know what, the premium for women is less for the same age profile. Women, to insurance companies, are a lower risk group!
• The next layer has to be liquid and safe investments. If these come with a tax-saving benefit, it is a hugely desirable bonus. Investing in a 5-year bank term deposit is now worth it as these deposits provide tax savings while also being relatively liquid. Ideally, again, this may be kept at 30 per cent of the monthly savings.
• Mutual funds can be used as an instrument to increase returns and yet provide flexible options. Ideally, a fund that provides switching facilities with no charge for two or more switches every year. By switches, I mean the option to move from equities to debt and vice versa. Let us say you have Rs 25,000 in MF units.
  If the units are in debt funds, switching to equity would provide potentially better returns over the long term, while creating a higher risk. However, when the stock markets have gone as far up as they can go in the near term, it may be a good idea to switch to a debt fund. So this requires watching the markets carefully and making switches at the appropriate time. At least 30 per cent of your savings budget has to be in mutual funds, preferably equity based.
• This now leaves 20% of your budget for other investments. Should this be in gold or fixed deposits or involve taking a chance in the share markets? This is up to you. Are you feeling adventurous? Go ahead and buy those shares you wanted to or invest some more money in mutual funds. If not, again, put more money in term deposits. Or buy a small amount of gold, even 2 gms at a time.

My assessment of the likely returns with this kind of portfolio is as under assuming an outlay of Rs 2,000 per month:

• although insurance is not investment, it represents an outlay and has therefore been included.

This works out to a return of 7.52 per cent on a simple basis. However, since insurance is not an investment, the investible funds provide a return of 9.625 per cent. These have all been calculated based on very conservative terms.

However, if we go to actual returns on equity MFs over a 5-year time horizon, the best ones have yielded a return of over 55 per cent.

Assuming that one is able to tweak the portfolio to provide a return of around 20% on the last two components, the actual return from the investible portion would be as follows:

Effectively, therefore, it is possible to obtain a return of 12.7 per cent on this portfolio, inclusive of zero yield insurance. However, since insurance does not even return the principal portion, the effective amount available for actual investment is Rs 1,600 and this gives a return of 15.875 per cent.

Now by the power of compounding, it is possible for this portfolio to build up to a sum of Rs 25 lakh (Rs 2.5 million) and change, in 25 years on a principal amount of Rs 4.80 lakh (Rs 480,000). The beauty of this approach is that this is entirely built with a liquid portfolio and the accumulation can be used for contributions during non- earning intervals.

However, taking a rise of just 10 per cent in the income level, the value of the portfolio would become Rs 60 lakh (Rs 6 million) and some change for the same period of time. The principal amount in this case is Rs 19.92 lakh (Rs 1.992 million). This is what woman power is all about.

Keeping just a small portion aside for savings, one can accumulate a good amount of money by creating a simple investment plan. This plan would also be useful for homemakers as they can squirrel away money by buying a few less non essential items every month and they do not need any insurance either.

One sincere piece of advice, based on personal experience, is never let your husband see your portfolio or even know about it. Men can really cast an evil eye on this money and con you into parting with it!

If you have come this far, I express my sincere gratitude to you. In case you have any queries please e-mail me at rakrishna1952@gmail.com. I will do my best to reply within three days of receipt. Please also go through the following articles by me for better perspective:

• Budget: How you can be a crorepati!
• The secret to becoming rich!
• What you MUST know about insurance

The author is a financial and banking consultant, with 31 years of experience. He lives in Bangalore with his wife, two children and two dogs. He believes in the empowerment of women and likes to contribute articles on personal finance for the benefit of readers.