The move from saver to investor – 5 steps for the Millennial Woman
A 2018 study by the Warwick Business School (WBS) showed that globally, women investors earn returns that are 1.8% higher as compared those of men. They also tend to have a more long-term investment approach with an eye on wealth creation. It’s time for millennial Indian women like you to shed the image of being just smart savers and take the next big leap to becoming investors. You too can achieve these milestones if you walk these five steps –
Save Tax once you start earning – SIPs in ELSS are forever
While diamonds are a fine gift to yourself from your first salary, tax-savings ought to be one of the first goals on your list. While PPF or NSC have been historically favoured, you can choose to start a systematic investment plan (SIP) in an equity-linked savings scheme (ELSS) mutual fund. An ELSS fund serves the dual purpose of investing for long term wealth creation, as well as, providing tax savings. Since you can begin an SIP with an amount as small as Rs. 500, investing in ELSS can be more rewarding if you start investing in April, as the new financial year begins. If you are wondering about returns, many ELSS funds have previously delivered annualised returns of over 12% (3-year period), as compared to other tax-saving options.
Create an emergency fund – be your own ATM
An emergency fund goes a step beyond your regular monthly savings. Ideally, such a fund should amount to at least 3-6 months of your monthly expenses to cover unforeseen events or emergencies, or even a planned splurge like a girls’ trip! As you would need this money at a short notice, these would be ideally invested in overnight funds or liquid funds. You can easily redeem your money within 24 hours. Since you can make partial withdrawals and easily re-invest the balance, you are in complete control of this ATM!
Forget fast fashion, look out for investment pieces!
As your earnings grow, you should gradually set aside at least half of your savings for investing in mutual funds. At a younger age, you can ideally invest more than 80% of your savings in equity mutual funds and the rest in less volatile options such as debt funds. It is also important that you start investing early – maybe even from your first salary. The importance of investing early can be exemplified as follows: if you invest Rs 3,000 in an SIP starting now, you will end up with a total corpus of nearly Rs 7 lakh after 10 years, assuming an annualised return of 12%. That same SIP started 5 years earlier would fetch you a corpus of Rs 15 lakh!
What women want
You may have many goals that are as immediate as, buying that latest gadget or as long-term as, retirement. While you may find a number of ways you can spend all your money right now, you have to start saving for your medium- to long-term goals as well. Set your financial goals, prioritise them, talk to your advisor and invest.
Those two magic words
Financial independence. To achieve it, you have to take equity market exposure – preferably through a few well-managed equity mutual funds. Equity is a great asset class to invest in; however, it comes with its own risks and bouts of volatility. Though equity investments generally beat inflation in the long run and help create wealth, it is better to review your portfolio regularly, at least twice a year. Reviewing your portfolio will also help you weed out consistent underperformers and divert your money to other schemes. So the two magic words ought to be portfolio review!
This Women’s Day, begin the journey to transform from a saver into an investor. Begin the journey to achieving your financial independence.