While there are many roads to wealth creation, the one sure rule is that there are no shortcuts. You not only need to get started as early as possible but also have to be prepared for continuous and monitored investing. While it is ideal to start your investment journey right from the time you bag your first job, typically in your early 20's, that's a time for new beginnings when splurging tends to take the front seat. So, most people tend to start building their asset portfolios in their 30's.
Although this is a period peppered with milestones like getting married, moving towards parenthood, et al, all of which significantly hike up one's financial responsibilities, the prime focus of your investment strategy should be to build a comfortable nest egg. While this advice is gender agnostic, it is particularly important for women to pay heed to it and ensure financial security for herself and her loved ones.
Keeping that in mind, here are the best investment options for a working woman in her 30s:
PPF and NPS
Public Provident Fund (PPF) is probably one of the best retirement investment schemes, offering complete tax-free benefits as well as a steady interest income. It is an ideal risk-free option where you can deposit up to Rs 1.5 lakh a year and earn an interest rate of 8% currently. The interest keeps compounding annually and credited at the end of every years. While it does not offer quick returns, it does provide long-term stability and decent returns after a span of 15 years. You can extend the tenure further in blocks of five years after the initial lock-in period.
Another tax-efficient long-term investment option is the National Pension Scheme (NPS), a concoction of equity, fixed deposits, corporate bonds, liquid funds and government bonds. It offers completely tax-free benefits under section 80C of the Income Tax Act to the tune of Rs 1.5 lakh, plus you can claim an additional tax-free deduction up to Rs 50,000 under Section CCD (1B). Moreover, under NPS, you have the option to invest in equities depending on your risk appetite. The one year market return for Fund option E is around 9.5%, while the same for 5 years is 11%.
Buying mutual funds through the systematic investment plan (SIP) route has long been a favourite with investors, again for long-term investment. And equity-linked investment schemes (ELSS), a diversified equity mutual fund product that allows tax-saving under Section 80C of the Income Tax Act, are one of the most ideal investment options for young working professionals. In the past five years, the average return from the top 10 ELSS stands at almost 20% so even the introduction of 10% long-term capital gains (LTCG) tax on equity earnings does not dent its appeal.
If you have the appetite for higher risk and are willing to put in extensive research, you can also consider investing in stocks. However, keep in mind that 2019 is election year. "As the first half is going to be highly volatile, investors should focus on sectors that have a high defensive component, and better earning capability such as consumer goods, auto, banks or IT," according to Gautam Duggad, Head-research, Motilal Oswal Securities.
One of the biggest mistakes made by thirtysomethings with dependents is not buying life insurance, and working women in this demographic are probably guiltier than most others. "In its simplest form, life insurance means protection against risks in life. These risks also exist in a woman's life, sometime even more than a man's life," said Souvik Jash, Appointed Actuary of Aegon Life Insurance Company Limited. Yet, data from Insurance Regulatory and Development Authority of India (Irdai) show that only 90 lakh women bought life insurance policy in 2017-18 while 1.91 crore policies were purchased by men in the same period.
No, it's not enough to have your spouse invest in a retirement policy. Just one life insurance policy between a couple means that you have to be prepared for a transition from a double income family to a single income one down the line. Investing in adequate life cover is also crucial for single women with dependent parents for the same reason.
"One basic rule of thumb is that the death benefit on your policy should equal 7-10 times the amount of your annual salary. But, like any rule of thumb, that isn't always particularly accurate. While you are calculating the right insurance amount to suit your lifestyle, one must consider certain factors that direct the premium that you need to pay," Jash added.
Remember, the earlier you join the life insurance bandwagon the better it is for you since the premiums only get more expensive as you get older. Nicotine and tobacco usage, personal medical history, family medical history, like heart disease or cancer among immediate kin, lifestyle, job profile and driving record are some of the other factors that come into play in determining the premium amount.
Studies show that women not only live longer than men but also utilize more medical services due to a greater likelihood of chronic disease and disability apart from reproductive care.
Hence there is a strong case for working women to take a separate health insurance policy, instead of settling for coverage as a dependent in a family health plan. Furthermore, there is the maternity benefit to look forward to. Expenses for a normal delivery alone cost anywhere between Rs 15,000 and Rs 1.5 lakh, without accounting for unexpected occurrences that may need urgent medical intervention and, hence, further expenditure. Without a health policy in place, such out-of-pocket expenses can do a number on a family's budget.
Other Debt Investments
Apart from PPF, debt covers options such as bank fixed deposits, small saving schemes, bonds and debt mutual funds. While it's certainly not a good idea to binge on such low risk, low returns options, an ideal asset portfolio will make place for them to ensure assured income at fixed intervals.
Also, to prepare for unforeseen events, the first thing you should do is set up a contingency fund, a corpus that can take care of three to six months' of expenses. You can put this money in a liquid fund as it gives better returns than money in a savings bank account.
Proper asset allocation is key to all kinds of financial empowerment. Even the highest-returns generating assets like equity funds can be of no use unless you do prudent asset allocation. Here's an easy way to figure out an age-appropriate asset allocation mix: Your allocation to debt funds must be equal to your age. Put another way, to find out what proportion of your investment needs to be in equities, just subtract your current age from 100.
So the portfolio of a 35-year-old woman ought to be composed of 65% of equity funds while the balance 35% should be in debt, insurance and cash (less than 5%). But, of course, this is not a one-size-fits-all policy and your ideal asset allocation mix will factor in your risk appetite and financial goals. After all, if many of your goals are short term, you can't risk having such a big chunk of your portfolio in equities. But even conservative investors should not go below the 60% equity allocation mark in order to maximise returns at an age when you are able to afford more risk. The older you get, the safer your portfolio will have to be.
(Edited by Sushmita Choudhury Agarwal, With PTI inputs)