Most financial institutions will tell you that the earlier you start investing, the richer you’ll get. And, this may well be true, because investments teach you financial discipline and help your money make money for you.
The Ideal Time To Start Investing
☑ You have no high-interest debt or liabilities like student loans and credit card bills.
☑ You have 3 months’ salary worth of savings for emergencies, job loss, recession, or any unexpected financial crisis.
☑ You’re making enough money where you have 20,000-30,000 to spare for investments after savings.
☑ You have some clear long-term goals in mind that will keep you disciplined (buying a house, children’s education fund, retirement plan)
☑ You’re motivated and looking for a way to multiply and grow your wealth beyond your pay-check.
Ready To Invest? Here’s Some Advice From 2 Financial Experts
We know that financial jargon can be overwhelming. But, if you’re serious about investing, you need to put in the time to understand your options and align them with your long term goals. Financial experts Abhinav Angirish, Founder of Investonline.in, & Satyen Kothari, Founder of Cube Wealth help simplify investment options for women without diluting the subject matter.
Our advice, read slowly, read twice if need be, and take notes to extract the information that’s relevant to your investment goals.
1. Can you recommend some key tax-saving investments for women?
Abhinav: There are various tax-saving instruments like Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF), Unit-Linked Insurance Plan (ULIP), NPS (National Pension Scheme), Life Insurance, National Savings Certificate (NSC), Fixed Deposits, etc. All these instruments provide tax relief to investors.
However, Equity Linked Savings Scheme (ELSS) not only provides an opportunity to save tax but also delivers decent returns that can help to beat inflation. All other instruments offer a fixed return wherein the majority of cases, the returns are determined by the government. ELSS being market-oriented offers the highest returns due to equity components in schemes. ELSS also has the lowest lock-in period compared to other instruments like PPF or NPS.
In a bid to save tax, many times investors ignore the liquidity aspect. Here’s a table that captures various tax saving schemes in a simplified manner:
|Instrument||Lock-in Period||Return||Tax Exemption|
|Fixed Deposit||5 years||Fixed (depends upon the financial institution)||Up to Rs 1.5 lakh in a year|
|Life Insurance||Depends upon the scheme||Fixed (determined by the insurance company)||Up to Rs 1.5 lakh on insurance premium in a year|
|ULIP||5 years||Fixed (determined by the interest rate set by the government)||Up to Rs 1.5 lakh in a year|
|Sukanya Samriddhi Yojna (SSY)||5 years||Fixed (determined by the interest rate set by the government)||Up to Rs 1.5 lakh in a year|
|NPS||Withdrawal permitted only after the individual attains the age of 60 years||Fixed (determined by the interest rate set by the government)||Up to Rs 1.5 lakh in a year|
|PPF||15 years||Fixed (determined by the interest rate set by the government)||Up to Rs 1.5 lakh in a year|
|ELSS||3 years||Market-oriented||Up to Rs 1.5 lakh in a year|
2. How Can You Align Your Investments With Your Financial Goals?
Abhinav: Honestly, investments should not be made for the sake of saving tax; they should always complement one’s financial goals. With a careful investment strategy, it is possible to fulfil life goals like children’s education, retirement, among others. Each investment is different, but here are some key things to remember when you’re trying to find the right match for your financial goal:
- Unit Linked Insurance Plans (ULIPs) can help one to meet various goals like saving for children’s education, but ULIPs are prone to fluctuations due to linkage with equities.
- PPF is ideal for someone having a low-risk appetite. It offers decent tax-free returns, but in a low-interest environment, it cannot beat equity funds. It helps create long-term wealth and can be useful in old age when you’re retired.
- Bond funds offer decent returns too. While bonds can be volatile in the short term, bond funds are much safer. Bond funds invest in many types of securities, thus ensuring diversification. Historically, bond funds investing in high-grade security have minimal chance of default. They are less volatile than stocks because they don’t fluctuate on a daily basis. By choosing dividend payout, you can get some good regular income on top of your paycheck.
- Mutual funds are ideal for high and low-risk investors, besides providing tax benefits, they have a track record of delivering consistent returns in the long term. One can take advantage of Systemic Investment Planning (SIP) to invest small amounts at regular intervals. Such an investment strategy not only helps to build wealth but can also help improve cost-averaging during adverse market conditions.
3. What are some long-term investments with good returns?
“Long term investment requires a financial commitment and fiscal discipline. They are known to deliver superior returns which can help one to fulfil financial goals,” says Abhinav.
“For long-term, one must go for equity advisory and aggressive quality Mutual Funds. Equity Advisory is a simple product offering high-quality advice on what equity to buy, hold and sell. It is for people who want to stay committed for a long period, say 5-10 years. It is important to take guidance from an experienced advisor, so you may want to opt for an online equity advisory service to help you out,” adds Satyen.
4. How should you divide your investment portfolio?
Satyen says, “Building the perfect portfolio may be different for different individuals, however, there are a few basic rules which will remain common.
First, you must build an emergency fund. Think of this as setting aside 3 to 6 months of living expenses. You could keep this money in your bank or liquid funds
Once this is taken care of, think of investing for short term goals like a wedding or saving up for higher-education. You can do this by investing in any short-term asset that doesn’t risk your core amount.
You can follow this up with investing for expenses you can foresee over the next 3 to 5 years. This is where your ELSS, Indian and International mutual funds come into play. You can pick funds based on your personal risk appetite.
Then, it’s big picture time–invest for long term goals like retirement that are at least 7+ years away. You can go for a concentrated stock portfolio here, but only under the guidance of a proven advisor – not based on tips.
A balanced portfolio like this will help you sail through to the other side with a big smile on your face.”
Abhinav adds, “When building a portfolio, it is important to diversify. As the portfolio continues to grow, it becomes even more important to spread risk across various asset classes. You can invest in PPF, a variety of mutual funds like liquid funds, short term debt funds and equity funds, life insurance, REITs, etc.
Investing in different instruments helps to balance risk and returns. If you are young, you can invest 35-40% in equity mutual funds, 25% in bond funds, 10% in REIT, 10% in PPF or fixed deposit, 5% in ULIP and hold the balance in cash.
You can diversify even within various investment categories, for example, while investing in equity funds, 60% can be invested in a large-cap fund, 20% in a midcap fund, and balance 20% among midcap and ELSS funds”.
5. Is it important to hire an investment advisor?
“Many cringe at the idea of a financial advisor. In fact, when it comes to investments, people often make irrational decisions that are often based on pure emotion. But, let me put things in perspective to explain why an advisor is worth the investment.
The services of a good financial advisor cost between 1-1.5% of the portfolio per year. This is a small price to pay for a professional who possesses years of experience and employs time-tested strategies for investing. Also, a good financial advisor can help to increase the returns by as much as 2.5-3%. Serious investing requires passion to analyse a series of documents, following the markets diligently and fiscal discipline. Sometimes the entire process becomes tiresome even for seasoned investors. The biggest advantage of having a good financial advisor is that they do it all, from providing expert guidance, developing a sound investment strategy, efficient asset allocation, to tax planning and advising in withdrawing investments in a structured manner.
When hiring a financial advisor look for the mixture of credentials and ethics,” says Abhinav.
6. Which investment would you recommend, specifically for women?
Abhinav suggests, “The ideal portfolio for a woman should consist of equity, debt, health and life insurance, and PPF, or NPS. Women are stressing more on achieving financial independence and today, women have become an integral part of the workforce. Now typically, women investors are considered more conservative than their male counterparts. They value security more than the returns.”
He concludes “The investment strategy should focus on receiving regular income along with capital appreciation in the long term. The portfolio should be structured after considering the risk appetite and various financial goals. Even the most conservative investors should strive to invest at least 60% in equities, and the balance 40% should be invested in debt, PPF, insurance, and cash. This will help them balance their portfolio and maximise returns in the long run.”