You want to be sure that the money you invest fetches you the maximum returns in a reasonable amount of time and is available as liquid cash in case of an emergency. Raghvendra Nath, MD, Ladderup Wealth Management Pvt Ltd offers safe investment options that will make you rich and secure
How to grow the money that you have, without losing it, is the question that troubles most women. Some of you could be working women while some could be homemakers. Whatever may be the case, it is important that you participate in the decision-making surrounding investments. It has been proven that women have much better instincts than men. So why not use them in growing your money in a safe and secure manner?
Think before you invest
Where should one invest? The world of finance has so many choices that it becomes virtually impossible for someone to choose the right investment option. *Anjana Sarin, HR Manager in a private firm, was being chased by one of her relatives to buy insurance. The relative started with citing the need for insurance, the children’s future, making good tax-free returns, multiplying money five times in 25 years, and so on. When nothing worked, he pestered Anjana to buy a small policy just to help him. Anjana’s heart melted and she gave away # 75,000 for an investment that she did not understand and certainly did not need.
Know the best investment options
The best investment options are the ones that you understand easily and that fulfil your specific needs. As a woman, you should test each and every investment against these two axioms, which actually cover almost all aspects of analysis:
1. If you invest in something that you don’t understand, you are taking risks for which you are not prepared.
2. Similarly, each investment should be result- or goal-oriented.
Understand the categories
Broadly, investments can be divided into two categories —real assets and financial assets. Primarily, your real assets are jewellery, land, buildings, flats, cars, etc. Financial assets, on the other hand, are intangible assets that have a defined pay-off like fixed deposits, mutual funds, equity stocks, insurance, etc. Homemaker *Debalika Mukherjee kept on buying insurance policies each year. She was promised that in the long term it would give her good returns; but she never understood that her funds were locked for 3-5 years. Nor did she understand that if she had to liquidate these investments in case of an emergency, she would lose 30-50 per cent of what she had invested. In short, she was stuck with illiquid investments.
Invest prudently
Ideally, every woman should have a good mix of both real and financial assets. Real assets help in preserving capital and also have a better ability to retain their value. On the other hand, financial assets help in creating liquidity as well as generating good returns. Typically, real assets should be bought for long term. By long term, we mean monies that the family can keep away for 10 years or more. Most of the time, whenever wealth is referred to, it includes only the long-term assets. Typically, 50-60 per cent of the long-term assets can be invested in real assets. When investing in real assets like jewellery or property, try to diversify as much as possible. Invest a limited amount of money in precious metals and invest the rest in buying only pure metals like coins. This can help in saving unnecessary making charges if the final intention is to sell.
Take the four-way test
Investing in financial assets is more complicated. Financial experts recommend a four-way test to determine the worthiness of each investment:
1 How safe is the investment?
2 How much liquid is the investment?
3 What kind of returns is it likely to generate?
4 Is the investment tax efficient?
Here is a list of some of the most worthy forms of investments in various asset categories. This does not mean that the other investments are bad. However, for those uninitiated in the world of investments, it can be a good starting point.
Life insurance – The most worthy life insurance policy that you can take is a term plan. Term plan refers to pure insurance cover without associated investments. Since the cost of coverage of life is fairly small, term plans are usually very cheap. For instance, a 25-year-old woman can get a # 1 crore cover for 25 years for just # 15,000 - # 20,000. Term plans help you in securing your dependants in case of unforeseen eventuality of death.
Medical insurance – Rather than taking individual policies, buying a family floater policy that covers the entire family makes more sense as it will bring down the overall cost.
Fixed income or debt investments – These refer to investments that give a fixed rate of return, have a pre-specified time period and are generally safe. The most important thing to look for while choosing a fixed income product is the safety. Because you are putting your capital at risk, it is critical that you lend only to people who you can trust. Bank FDs, government undertaking bonds and fixed income mutual funds fall high in this category. Only when you are satisfied with the safety should you look at the returns.
Equity investments – Equity markets are long-term investments, which means, we should look at them only for an investment horizon of 10 years or more. Many regard equities as gambling, which is not true. On the contrary, historically, equities have given the best returns amongst all asset classes, when looked at for long periods. Just to give you an indication, # 100 invested in Sensex in 1979 has multiplied 170 times to # 17,000 in the last 33 years. The return obtained here is more than any property in which you would have invested for a similar duration. The best way to invest in equities is through mutual funds. Many of you may be lured by neighbourhood brokers to invest directly but you should resist the temptation.
While we have touched upon some basic desirable investments, we cannot do justice here to the vast intricacies that are associated with each investment. The current dynamic world is seeing the emergence of newer categories and types of investments. The best investment for women is to invest in financial knowledge. Most of our life we handle money. It is important that we understand money well.
- (*Some names have been changed to protect identities)
