Women and Investments: Are Women the “Reluctant” Investors in MF?
I write about money and personal finance on social media channels like Facebook and Twitter. Recently a lady commented on a Facebook post wherein she wrote, and I quote, “I have invested in Mutual funds before and have had a bad experience. So I don’t invest in Mutual funds, but I have invested in SIP and I’m happy with that experience.”
SIP or a Systematic Investment Plan happens in Mutual Funds. The aforementioned lady was not aware that to invest in a SIP is to invest in Mutual Funds.
This comment reflected the lack of awareness on her part. It was also a reflection on her advisor who advised her to invest in a SIP, without informing her that SIP happens in a Mutual Fund scheme.
Women, the money managers of the house
Women historically have been the money managers of the house, and are really good at that. They manage the monthly household budget well, choose how much to spend, how much to save, where to save, and for how long.
Traditionally, women have saved in recurring deposit schemes of banks and post offices where one can save a fixed amount and get a guaranteed return at maturity. The other favorite option for saving systematically has been gold, either in its pure form of 1-2-5-10 gram gold bars, or as jewelry.
I remember my mother used to insist that my dad buy a small gold item every year on Diwali for my younger sister ever since she was born, till she got married. Which means, the habit to save fixed amounts systematically has been ingrained in women by their mothers and grandmothers.
SIP in mutual funds
An SIP in a mutual Fund is just an extension of that systematic saving. Here, one decides to “invest” in mutual funds schemes a fixed amount periodically like Monthly, Quarterly, or even Daily for a predetermined period. In the long run, the investment grows, helping us achieve our financial goals. These goals can be your children’s higher education or marriage, buying a house or a car, or even going on an international vacation.
Traditional savings instruments like fixed deposits in banks or post offices give returns of 7-8% annually. Adjust this for inflation and taxes, and what you get is a meager 1-2%.
Remember a saver’s biggest enemy is inflation. Simply put, the cost of any item or service that we use goes up in time. For eg, education inflation is around 15%. This means that an MBA that costs 20 Lakhs today will cost 1.62 Crores after 15 years. Unbelievable? Believe it.
So, if you as a mother are planning to invest for your child who’s 3-5 years old and will do an MBA or any professional degree 15 years hence you need to start “investing” from today itself.
So how does one plan to achieve these financial goals?
The answer is to invest in mutual funds, especially equity mutual funds.
So how do equity MFs work?
In an equity MF, a fund manager buys equity shares of select companies, which he or she feels will do well in the long term. It generates capital appreciation and our investments grow in value proportionately. We can invest a lumpsum, ie, a fixed one time investment, or via a SIP, which is a Systematic Investment Plan.
Historically, the BSE SENSEX has been the benchmark to track the returns generated by Equity Mutual Funds in India. The benchmark has generated approx 16% since inception.
Put simply, the Sensex value in 1980 was INR 100. Today it’s 35,000, which means INR 100 invested 38 years ago has grown to INR 35,000, giving an annualized yield of 16.67 %
At 8% INR 100 invested for 38 years would have grown to 1,862/- only
At 10% INR 100 would have grown to INR 3,740 only
At 12% INR 100 would have grown to INR 7,417 only
At 15% INR 100 would have grown to INR 20,254 only
At 16.67% it has grown to INR 35,000.
This is the power of compounding and such returns are possible in Equity Mutual funds. Well managed Equity mutual funds have generated 18-20% over 15-20 year periods.
What’s most important to understand is that Equity MFs DO NOT generate straight line 15-18% returns year on year, unlike Fixed Deposits. They are by their very nature volatile; sometimes they do extremely well and in some periods not so well.
So for all you ladies out there looking to achieve your financial goals, consult an experienced adviser. A good adviser can help you plan your investments and select a scheme as per your risk profile.
Would like to contact Deepak for an investment advice? Write to: firstname.lastname@example.org
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