Why It’s High Time For Indian Women To Learn Personal Finance?

Indian households, more or less, continue to retain their patriarchal image where a male member gets to flex his financial muscles. Many believe that women will learn about personal finance eventually as their participation in the workforce continues to rise. Regretfully those beliefs are largely unfounded based on statistics that indicate consistent fall in the percentage of working women in India. A report from the International Labour Organization evidences the fact, highlighting 10% drop in women workforce since 2005. 

Even majority of working women appear to be reluctant in managing finances as they personally feel less confident about the subject matter. The role of Indian women is largely restricted to bill payments, monthly budgeting or at the most managing individual taxation while a male member of the family calls the shots on investments, insurance, savings and other financial planning aspects. A trend that explains continuity of sub-par financial literacy among Indian women. 

The continued indifference to finances is harming Indian women more than ever, leaving them vulnerable to long-term results of ongoing social changes. Let’s look at some of these changes that command increased preparedness from women on the financial front. 

1. Extended maternity leave - Women often require extended maternity leave over and above the company provided leaves to ensure the well-being of their newborns. A majority of working women either take a sabbatical or career break to raise their children. However, there are some women who do not enjoy privileges to be at home due to financial commitments that overlook them. At these times, a well laid out plan before entering motherhood can take care of the financial commitments during the extended unpaid leave without compromising on the care of the infant. 
2. Looking after parents, spouse or children- Many women want to financially support their parents and look them through their retirement years. Unforeseen circumstances like losing a family member or critical illness of spouse or parents might force women to shoulder the entire financial burden of a family. Thus, awareness about financial matters and a well-implemented financial plan right from the beginning can systematically avert financial troubles during uncertain times. 
3. Higher life expectancy - Several medical studies have found that women tend to outlive men. Thus, retirement planning without considering this aspect may prove to be futile. Women should provision enough for themselves that can help them cover their extra grey years. 
4. Increasing divorce rates  - Divorces are mounting in India every passing year and its best to take financial matters into own hands if separation seems inevitable. Addressing financial complications early during a rough marriage can go a long way in securing one own's financial independence later. 
5. Changing the image- Active participation of women in big-picture financial planning can effectively inspire others in their social circle and family.In fact, by starting now women can set an example for future generations and shed off the label of “the female financial paradox.”

Women participation from workforce might be declining but it’s never too late to fix this shift. If the thought of comprehensive financial planning is in itself overwhelming then it’s time to remind the incredible efficiency with which women manage a household budget. Several studies have already concluded that women are better money managers than men, which should leave no room for doubts on the abilities of women power. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Seven Reasons Why Investing On Your Own Could Backfire

Periodic access to stock market information and motivation to take charge of own financial future might encourage many investors to take a dive into direct investing. At times, investors debuting in stock markets or mutual funds might even hit beginner’s luck, and everything appears to be in place, until reality strikes.

It is crucial to understand that investing does not end right after writing a cheque towards a fund or placing an order online, rather it begins there. There are various aspects associated with investing such as periodic reviews, monitoring and knowing what-to-do and when. Few of the common errors that direct investors often make while investing are listed below. 

1. Losing sight of crucial goals - New investors often get carried away by bigger goals, which put them at risk of neglecting smaller but basic goals such as adequate insurance cover or emergency corpus. 
2. Disconnect between objective and investments- Every investment has an underlying investment objective or financial goal, but problem occurs when an investment product is a misfit for such an objective. Like equity stocks or mutual funds are not the right place for emergency corpus. Similarly retirement corpus cannot be built through debt vehicles alone.
3. Clueless about investment strategy - Each individual has a unique financial goal and risk appetite, which is paramount in developing an appropriate investment strategy. However, most of the direct investors place greater emphasis on products and end up accumulating more than they actually need. 
4. Placing lot of significance on historical returns - Even when most of the mutual funds categorically specify that ‘past performance is no guarantee of future returns,' most investors find themselves swayed away by stellar fund performances. Apparently, oversight of other parameters cost those investors dearly.
5. Herd mentality and peer influences - Direct investors are vulnerable to peer influences and herd mentality, i.e., they endorse the acts of others and try to follow the same path. This happens mostly in offices or professional and social groups as any investment strategy followed by one instantly becomes a handbook for others. In the process, investors forget about the differences that exist between risk appetite, life goals and existing financial circumstances between themselves and peers.
6. Improper diversification - Investing on own might even lead to under or over diversification, which means that a portfolio lacks the right mix of assets. Investing into too many funds with the same objective or putting all funds into real estate can lead to a skewed portfolio and so the returns.
7. Loose ends - As said earlier, investing process ends only after an investor reviews and monitors his/her portfolio. Leaving funds invested in a product for long could defeat the whole purpose of investing itself for lack of adequate returns. 

Taking swift decisions on how to manage investments such as booking profits and re-investing in better avenues are crucial, without which, an investment is not really an investment in a true sense.

Best way to counter these challenges is to seek professional advice as doing everything all alone can become a daunting task and might not fetch desired results.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. Reenika Avasthi is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Why It’s Time To Shift To Liquid Funds From Savings And Current Account?

Financial Year 2016-17 started on a positive note for Savings Bank account customers, under the new guidelines of the Reserve Bank of India, they are set to receive interest rates on a quarterly basis or shorter intervals. This directive will fetch slightly better returns for customers, but the question remains… is it enough?

The answer lies in the fact that in spite of deregulation of savings interest rates by the RBI years back, majority of the banks continue to offer 4% rate. The state of current accounts is far worse as they are simply denied of this privilege. However, be it lack of time or knowledge, many of us miss out on this opportunity called “Liquid Fund” to tap the potential of earning higher returns without locking up surplus cash.

What Are Liquid Funds?

Liquid funds mainly invest in securities bearing short-term maturities such as treasury bills, certificates of deposits and commercial paper. The best part is these funds do not charge entry or exit loads, letting investors withdraw their amount freely without having to worry about lock-in period.

Category	1 Month	3 Months	1 year	3 years	5 Years
Liquid Fund	0.63	2.0	8.0	8.7	8.8
Savings Account	0.33	1.0	4.0	4.0	4.0
Difference	53%	50%	50%	46%	45%

  *Source: ValueResearchOnline

Investors can receive funds the next business day of placing redemption, which provides daily liquidity. These funds are the most ideal investment tool for not only individuals, but also for non-individual entities to put their idle surplus to use and earn interest which otherwise is not available under current account. A report from the Association of Mutual Funds in India (AMFI) revealed that increasing number of corporates invested in liquid and money market schemes that saw an inflow of $1.3 trillion in April’2016.

Because these funds are exposed to only money market linked risks, the possibility of volatility or negative returns is remote due to short maturity period of the debt instruments. In the said savings category, the scope of returns is also higher and better than a savings account and current account. On an average, a liquid fund can deliver returns between 7% and 9% or higher annually, which is based on their past performance over the last five years.

From Tax Aspect

Many investors shy away from this alternative due to tax worries. However, liquid funds continue to reign over savings account as far as taxation is concerned. For instance, if 8% annual returns are expected from liquid fund investments, then post-tax returns for individuals falling in 10%, 20% and 30% tax bracket stand at 7.2%, 6.4% and 5.6% respectively. In a nutshell, post-tax returns from a liquid fund beats the savings bank interest by a phenomenal margin while it is an essential investing mode for corporates.

Besides this, liquid funds when held for less than 3 years attract short-term capital gains tax, which is taxed as per an individual’s tax bracket. Thus, choosing growth option over dividend option is appropriate for those falling in 10% or 20% tax slab. On the other hand, investors in the highest tax slab, i.e., 30% should ideally opt for dividend reinvestment option. The rationale behind this is to lower the tax outgo as dividend distribution tax (DDT) paid by fund is 28.84% (25% +12% Surcharge + 3% Cess), which is reflective in NAV (Net Asset Value).

When held for more than three years, returns from liquid funds will be taxed as long-term capital gains at 20% with indexation.

Length of time

It is clear that liquid funds score over savings account, but time duration to remain invested in these funds also matters. Any investment above three months to six months might lose opportunity cost of earning higher returns, which is available in other short term income funds. Hence, reviewing the portfolio and taking an appropriate action is advisable.

Important element of Financial Planning

Finally, it cannot go without saying as how liquid funds are key to financial planning. Investors should ideally park their emergency corpus in a liquid fund to ensure they earn higher interest rate over savings account without compromising access to funds. The best part is investors can start investing in liquid funds with as little as Rs 5,000, which is equivalent to minimum balance maintained in most of the savings bank accounts.

About the author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. Reenika Avasthi is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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