The Mutual Fund Show: How Women Should Invest At Different Stages Of Life
The Mutual Fund Show asked the experts how women should approach investing in each stage of their lives.
Women encounter challenges that are unlike what men will ever face. Some of these can be mitigated with strong financial planning. On the International Women's Day, BQ Prime asked the experts on The Mutual Fund Show how women should approach investing in each stage of their lives.
Women who are just entering the workforce should build a budget and track the money that is coming in and going out to have "crucial inputs" on how to plan things ahead, according to Prableen Bajpai, founder of FinFix Research and Analytics Pvt.
Underscoring the importance of building an emergency fund, Shweta Jain, founder of Investography Pvt. said women's careers are "not like a linear graph."
"We take breaks to take care of children or start a family or even take care of senior citizens at home," Jain said. "You know, that's while we are building careers and it's a crucial time that's also crucial time to be the primary caregiver role that naturally comes to us."
Watch the full interview here:
Edited Excerpts From The Interview:
I thought that I would structure this show in a manner that addresses women at different phases of life. One, the woman who is joining the workforce. The second is the woman who has decided to expand her family, possibly to have a child. And women who will eventually retire or are retiring right now. Prableen, a lot of women entering the workforce, what do they need to bear in mind? What advice would you give them?
Prableen Bajpai: I am excited to be here, wishing everyone, men and women, have a Happy Women's Day. So, I think the first stage is in terms of age, I would break it between 20 to 30.
I think that's the age group where women are entering the workforce and I think what you are looking at is not a very steady income. But you know, initially you're just setting up your career. Probably it's your first job, second job. I think this is a very important time to start looking at how money is moving in and out of your life.
What are you earning, understand the basics of your taxation. Then of course, you know, tab on, what expenses you have. So basically, the whole process of budgeting, which is a slightly boring drill, but I think that's really important to know what's coming in and what's going out and I think that sort of gives person, man or woman, crucial inputs on how to plan things ahead. This is a good starting point.
I think the first few things which women should start doing, first is create a buffer for themselves in terms of what we always say a contingency fund or an emergency fund, but I feel the requirement of a buffer fund is a way more for women.
So I think that's the first thing and of course, like any professional they need to know, look at their long-term goals or medium-term goals and start their planning process because the journey for women in terms of their career is much more dynamic, given how the family commitments change over the course of time and this 20 to 30 sort of a time period is when you know, I think they are getting married, what we call the settlement phase for women, which is changing fast but this is how they should start. Have a buffer and look at their goals and start investing gradually.
Shweta, do you agree with that and how much should they set aside? Of course, it's not something that’s a ‘one size fits all solution,’ but there can be some thumb rules to follow.
Shweta Jain: Here, I think I'm just going to build on what Prableen said because I agree with a lot of what she said as well. So, I think emergency fund or creating a buffer for women is really, really important and much more important than men because the career graph is not like a linear graph, which happens with men.
We take breaks to take care of children or start a family or even take care of senior citizens at home. You know, that's while we are building careers and it's a crucial time that's also crucial time to be the primary caregiver role that naturally comes to us. I won’t say it is thrust upon us, but I think it comes very naturally to us as well and it’s something that we want to do not just what we need to do, you know, we want to do some of these things.
So, creating that buffer is really, really important of how much of that I think depends on each one's family situations, how much one is earning. But I would go back to building on the budgeting thing because these are crucial stages to build habits and I think budgeting gives you that flexibility that you will need later on in life.
So, the funny thing here is that while we want to and we can create long-term goals here, it's so much more difficult to set aside that money for long-term because you're not really visualising it and everything else is tempting you around, whether it's that vacation, that backpacking because you know 'once I get married, I can't do this, once I have children, I won’t be able to do that so easily.' So, you know, a lot of the ‘you live only once thing’ is more relevant at this stage especially for women.
So, it becomes that much more difficult to sort of save from that. But I would say that you know, some thumb rules, for example, I think 10% towards long-term goals. I won't say towards retirement, but towards long-term because women can't really set aside a lot of that money because they want to use that now, but I think 10% set it for a long-term goal, whatever that may be.
I think if it's focused on somebody else, we tend to give it more importance than our own self, it's sad but it's true. I also think what women need to do at this point is create the right habits. So, while you may be listening to your parents or friends saying you know you need to invest in gold because gold will never go down or you need to create an FD which you know, is your safety net.
I think creating the right habits, put in an FD only what you need in the next one or two years, I think not more than that, gold investment in the right way. Whether it's you know by investing in ETFs so at least you can sell it when you need the money.
Otherwise, the gold that you buy physically, you may not even want to sell it, you usually don't sell it. That's the truth about it and especially if it's jewellery then let's forget about it, it's never going to get sold. So, I think investing in the right habits and starting off with equity. I think this is a crucial stage to start off with equity, whether it's through ELSS or whether it's, you know, passive funds.
So, you can even join in the conversations that your colleagues are having because I really think one thing that women shy away from is having these conversations around investing saying, you know, I don't know enough, what if they think that you know, in my career and you know their boss, but otherwise in investments if I make a mistake or say a dumb thing, they may ridicule me or you know, think less of me, so I think they don't want to risk that.
So, start small amounts in ELSS or an index fund and you know, you can brag about that as well.
Prableen, ELSS, what is the kind of option that you would suggest?
Prableen Bajpai: So, between the passives and ELSS, I feel investing at this stage you know, 20 to 30 is a time period especially for women where their risk taking abilities are higher because the second age group if you put it let's say from 30 to 45, that is the time when usually you enter motherhood and other changes in your life and family commitments increase.
So, I think 20-30 is really the time when you should actually push towards equity investing. Having said that, I think if you're just looking at 80C and the old tax regime, part of it would be taken care of by their ETF deductions. So, whatever is remaining, going forward, given how the budget this year was, I think the onus of investing will eventually come down to you know, an individual only.
Without really these deduction, sort of stimulation wouldn't be there that you know, you bought this much, this is the deduction you get. So now I think I would suggest a combination of your ETF, so it gives you the fixed income compounding over a long time period along with index funds and within index actually now we do have I think one or two ELSS as well which are taking the index option.
But if you are 25 today, and we're really looking at long-term investing I feel that person, specially in the long, in the large-cap space, a lot of ELSS schemes are actually large-cap oriented, if you don't really make sense to have it more towards the index.
So, I would advocate a combination of index along with ETF so there is no compulsion there is no restriction. There is more flexibility in terms of what you want to increase-decrease and I think going forward, passives have to be a part of the core portfolio.
As Indian markets mature, I think that would be a sensible thing to do if you're actually building something for the next 25-30 years.
Shweta, you mentioned the yolo kind of approach to life and that I think makes a lot of sense when we are speaking to women in a certain age group in particular. Do you think that a discretionary fund should be set aside to facilitate this so that there is no feeling of guilt?
Shweta Jain: Oh, absolutely, because I do recommend having a separate fund, which is your guilt-free fund and in fact, I have written articles about it as well. That's how I manage my money because I think it's really important for you to enjoy your money without feeling guilty about it because the minute you feel guilty, you end up spending even more money.
So, I think I have shared hacks about how to do this. I think the best or one of the best ways is to definitely keep saving a part of your monthly income into this fund and then using only that much money because otherwise you will end up taking loans for that vacation or taking loans for something that you really don't need to take a loan for, you know, and it becomes a lifestyle thing, 'okay, if I need something, I will take a loan for it and pay for it on EMI.'
So, I think that behaviour I am not really happy with, which is why I keep promoting this that you have a separate fund and use that money for whatever it is, whether it is a vacation, whether it is shopping.
Where do you invest? How do you build that fund?
Shweta Jain: You could build it in a liquid fund, you could build it in another bank account. You could build it in another FD, whatever works for you. I usually do a combination of bank account and a liquid fund.
Prableen, if you're talking about the gap in career, what kind of advice in terms of investing, in terms of building a portfolio, in terms of allocation would you give for these women?
Prableen Bajpai: I will share data with you. This is by the Genpact Centre for Women in Leadership and it says that 50% of working women in India leave their jobs to take care of their children at the age of 30.
I think it's quite true. I am married to an army officer, and I know I have so many of these well-educated women who were working and now not working because they gave up their careers, because it's very difficult to keep moving every two, three years. I think it's just one example of how and you know, women sort of need to make those sacrifices because you want to keep the family intact.
That is why given the fact that you know, the lady has to bear the child and let's say the man is seen as the primary, you know, in terms of career facilitation, I think he's the main member.
Given all of these, you know, combined together and our own biological clock that we want to be with the child, or we want to spend more time when your child is younger, I think, you know, putting all of this together. I think, number one is that as I said that you know the buffer has to be really big.
I have been talking to few women who are now you know, wanting to have kids who are working some of these are Bengaluru based, somebody is Mumbai-based and I think they have understood this thing that you know, now they are used to their own money, they have certain investments, but they want to have that continuity and that continuity with having your own money to be able to continue with your investments, continue probably, you know, you have a car loan by then, is only possible when you have that additional corpus where you are able to ensure that it's not only one and a half years, but I would say minimum two to three years of money is there with you that you can manage that lifestyle.
That can not only give a lot of financial freedom in terms of decision making, but I think the peace of mind as a new mother that I can take a break. It's okay to you know, extend my maternity leave, maybe without pay or other options.
Another very important thing is that a lot of women once they become mothers and I included, I think, you know, we start looking for options where maybe we can look at part-time role, or roles where we are looking at entrepreneurship so that we can have the flexibility of hours and all of this, you know, the truth is that you need money for it.
So, I think for women before they set into this phase, I think it's very important to have a decent sizable corpus set aside, to be able to tide over, you know, all of these life changes.
Prableen, how do you allocate towards that? I would assume that you want to take advantage of equity over a period of time and then make that shift whenever you have to.
Prableen Bajpai: I feel, depending on your age, so if you are starting your career at 22-23, you have a slightly longer period ahead of you. So, a higher combination of equity can be there, but I would still advocate that this should be a mixed sort of funds.
So maybe a category where you actually have part-equity and part-debt exposure. So, something like a hybrid category or balanced advantage fund can be fine, if you have a five-year plus horizon.
But if you have lesser than that, then I feel it's better to just park it in a debt fund or via a monthly SIP so it can be, we have just triggered something, you know, she's planning, and we plan to set aside Rs 30,000 for her in our debt fund on a monthly basis just to build up this corpus over the next two years.
So, I feel if you don't have too much time, then it would be a debt fund. If you do have five-year then also a combination, I would not say pure equity. Pure equity like Shweta suggested I think you plan for it, but maybe the percentage can be less and that you keep untouched you know, let it compound.
Shweta, what kind of advice would you give?
Shweta Jain: So, I have a toddler at home. So, my, my oldest son is 12. My younger son is two. So, I have a huge gap between the two of them. So, the kinds of expenses that we have seen for the first one and the second one, let me tell you, are very, very different.
I think also because when we had the first one, we were young, and now we are slightly more settled, we have our own home, the kind of expenses that we have for the second child are very different. So, from that perspective, I think I did not imagine or anticipate how expensive this child is going to be, to be honest, because of the first child I think it's more exciting, on the second child. It's now more saying this is my last child.
So, you know, I want to fulfil all my sorts of goals, dreams, whatever. So I think it's also aspirational for parents to spend money on their children, whether it's buying toys or high chairs or any sort of equipment that you will use only for a few months even.
But it's kind of pampering that you will see that just this generation is doing something which we have not seen in the past generations to be honest and I think that needs a lot of money more than anything. So, from my perspective, I can share that, you know, for the first child, I had set aside two years of my own expenses and made sure that my spouse was on board that you know, I may not want to go back to work for two years, but the second one, the conversation was a little more different than I want to spend X amount of money.
While now I am an entrepreneur and there is a regular income coming in. Whether I work or you know, put in lesser hours, but the kinds of expenses I want to have been this. Are you comfortable with that because now it's a family decision, and what impact will this have on the older child, if any, because I remember when we announced pregnancy to the older one, his first question was, will you change my school? That was his only question because he goes to an international school. So whenever earlier I realised now or after we would have always discussed we cannot have a second child due to financial constraints or whatever.
So, it's also conversations about money that the family is involved in. So, what kind of expenses you want to sort of have, whether it's aspirational or whether it's, you know, only child, last child, whatever you want to name it. I think it's really important for the couple and the family to discuss these expenses because as my husband is not on board I cannot be living on debt, which I have to tell you, a lot of people are not having these conversations.
I remember having a conversation with a young mother saying I feel so guilty that I am spending all this money while this is my money and she's spending her money. While this is my money. I am not telling my husband any of it. You know, I am just spending any time I feel upset or excited. I am spending money. I am buying all of these toys and filling up the house.
So, a lot of these conversations are really important. I think the kind of money that you have, whether it's equity, whether it's debt, how you are going to fund these on a regular basis if you don't have an income coming in, I think very, very crucial because you do not want to compromise your future.
Whether it's your goals or your child's goals for something that you may have easily avoided. These expenses are really big, especially when you have a child or a baby, the cost goes up to two or three times. So, make sure that whatever expenses you are having today, it's a part of something that you are planning for and as a conversation, it's really important.
Let's talk about the last phase, Prableen, and how do you plan for that?
Prableen Bajpai: I think I will also go one stage before this. Two things here, I think that initially when women started to work in the whole child thing and all, what we are seeing is huge change in the society. Number one being the number of unmarried women has really risen and secondly, I think divorce rates.
So, even before retirement there would be a lot of women who actually have to start really seriously looking at how they would be managing themselves, in the final stage of life, which you say post-retirement because for a lot of working women, I think it's still that combination of where you know, husband and wife together, are going to help with those goals.
But for women who are already in that stage, where we are looking to now manage your monthly income via corpus. I think women have a lot of clarity when it comes to how they want their money to be and one part of it I think should be your fixed income options like the RBI bonds where you know the surety there's guarantee and because you have that 20-30, 35-40 year also in front of you, you know, considering the longevity.
You have to have the equity option. So, I think part of it has to be in a fund where maybe you are doing a systematic withdrawal also to bring in more tax efficiency for the final corpus that you have in managing your monthly income.
Shweta, any points and then I will come back on recommendations and suggestions for schemes.
Shweta Jain: Yes, I think women start to think about retirement early during that 40s stage for sure. So, they have to figure out how much corpus they would need where they are falling short off, if any, and if they need to extend their career.
I think these are calculations and conversations that they need to have at that point, because you can still delay your career or delay retirement. But once you are retired, you may not want to come back to the workforce. I mean, it really depends. But you need to be sure that you are clear of that corpus, and you will get the monthly income that you need because otherwise it can get into a really tricky phase emotionally and mentally.
The other part is I think, definitely look at how you are going to generate that cash flow, but remember that it's still 20-30 years of cash flow. So the equity component initially needs to be high. So, while you're retiring, I don't think you need to withdraw everything from equity and put it into debt or safe products or under your mattress for that matter. You need 30 years of cash flow, so you need to make it grow.
So, I think a good decent amount of corpus, you still need equity. I would even go to say as much as 30 to 40% still need to be in equity because it needs to grow and the rest of it could be a combination of SWPs which are systematic withdrawal plans.
It could be a monthly or quarterly income that is coming from something like a senior citizens bond or a post office monthly income scheme because these are comfortable names that you know, and other peers are also talking about so I think these are comfortable memes.
But you need to have the SWPs going, I certainly feel very strongly about that, and you need to have a decent amount in equity for sure.
Prableen, would you like to give a few suggestions as to what can be looked at and then also in the last phase where you are talking about equity schemes, are you still saying passive is the is the way to go?
Prableen Bajpai: So, for recommendations within hybrid, I would say the hybrid scheme, aggressive hybrid where you have 65% in equities and 35% in debt that is a decent category to be in HDFC, Mirae, they have decent funds.
I think balanced advantage funds also for such requirements are good. Where you are looking to have the mix of the two, so again, ICICI, Edelweiss, they are decent names.
I think another category which they can look at is the conservative hybrid, where you just have a max of 25% in equities and the rest is in debt and this is especially, I think handy for that age group where you are looking to create a corpus for yourself, but you don't have a very longish horizon.
So, these are some of the categories or a combination and for the final stage, I think it can be depending on the corpus that they have. I have come across cases where you know, everything really needs to be deployed and then you start getting something out of it.
So, depending on the situation, how much of a monthly requirement do you have. But if you have anything which can be set aside very neatly, then I think passives is again a decent choice, you know, so just put it in Nifty 50 and let it be there a part of it and if you have to have everything deployed and then do SWP then again, I think it should be a combination of your government schemes with balanced advantage funds. I think they work decently from a withdrawal point of view.
Any additional thoughts Shweta?
Shweta Jain: Yes, I think for SWP, I would recommend a pure debt fund, more than a balanced advantage fund.