‘Saving’ and ‘investing’ are often used interchangeably in India. What is the difference between them and why is it important to differentiate at the very outset? Saving is setting money aside for contingencies, which offers minimal or no rate of return; investments are a systematic approach to wealth creation. Investing is having money generate more money by compounding itself into a larger corpus over time. Simply put, investments are nothing but a way to multiply one’s savings.
Conventionally, India has always been a savings-focused nation. The household savings rate in the country was around 26% of the household income in 2016. A large chunk of this household saving is attributed to the women of the household; they have always saved using traditional methods, such as using a basic savings account, keeping cash aside every month, or using a recurring deposit.
Why do women hesitate to invest?
For Reema, a middle-class housewife, saving some money every week from the earnings is a habit. She invests in gold, as well as in the popular informal chit-fund scheme. Her husband, however, actively invests in the stock market and in mutual funds. While her savings may last her a while, Reema will notice that her husband’s investments will be the primary source of post-retirement wealth for the couple.
Contrast this to Juhi, 25, who has a marketing job in a tier-1 city. She has been mulling over the idea of investing in mutual funds for a while. She is, however, unaware of whether to do it via an app, online portal, or through a tax adviser. Perhaps the onus of her investments will lie with her father, while she promises herself that she will invest in mutual funds after a salary hike.
Why do women like Reema and Juhi not invest? Lack of financial literacy often hinders them from actively investing their savings systematically.
Gender stereotypes pose a hurdle
Today, even with money at their disposal, women are not making the most of the situation. Among working women in India, only 23% take their own investment decisions. The remaining 77% depend on their spouse or parents. Most women are informed of the decision already taken or are, at best, joint decision-makers.
In India, men are taught to be financially prudent from an early age because of their ‘responsibilities’ towards their parents, spouse or children. Conventional gender roles define men as the breadwinners and women as the nurturers, even in progressive Indian households. Additionally, advertising and marketing messaging by financial service companies tend to communicate to men, as they consider them to be the primary source of revenue. And so, women tend to take a backseat.
But how can women begin to invest actively? Through four easy steps:
A journey of a thousand miles begins with a single step. Try to read and learn as much about financial instruments and schemes available in the market.
There are various wealth management apps, communities, and personal finance workshops and courses available online and offline for free. Educating yourself and asking questions is the only way to go about things.
Start early, start small, plan well
Various low-risk options, such as Public Provident Fund (PPF) and Recurring Deposits, are good to start early. The amount needed to invest starts as low as Rs 500 a year. PPF also offers tax benefit on a maximum deposit of Rs 1.5 lakh annually.
You can invest large amounts of money, say Rs 1 lakh, in a Fixed Deposit; this will yield anywhere between 5% and 8.25% interest depending on the amount and maturity period. These accounts can be opened online without a bank visit and are great income tax-saving tools.
One of the biggest mistakes women often make is ignoring insurance. Even though women tend to have higher life expectancy and greater incidence of lifestyle diseases, they avoid individual mediclaim because they are usually covered under the family policies held by parents and/or husband.
As far as life insurance is concerned, the stereotypical narrative is that a husband will buy a life cover to ensure a better life for his wife and children after his passing. Thus, there is no need for the wife to get a life insurance. However, both health and life insurances are critical for ensuring financial security; also, they offer additional tax benefits on various schemes.
Grow your investments
While simpler instruments are great to begin early with, it is important to evolve your portfolio as you go along. Terms like SIPs, mutual funds, and equities may sound intimidating, but it is all a matter of knowledge and education. Once the understanding sets in, things become easy and the potential to make your money grow steadily increases exponentially.
Various tools, such as money management apps and online tutorials to understand financial management, are available online. Further, one can always go to a financial advisor for money-related questions.
Priti Rathi Gupta is the founder of LXME, and the managing director and promoter at Anand Rathi Share & Stock Brokers Ltd.