Come every March 8, on Women’s Day, there are the usual television programmes, articles and videos discussing and analysing the progress made by women in India. Among the many areas where women’s empowerment in India has a very long road ahead to traverse is financial empowerment. Their involvement in financial planning for themselves and for their families is still quite low i.e. women still play second fiddle to males in their families when it comes to financial decision making. Survey and after survey have indicated this fact. Take for instance a 2019 survey conducted by prominent mutual fund, DSP Mutual Fund, as part of their “DSP Winvestor Pulse Survey 2019”, an initiative focussing on encouraging women investor take investment decisions. The survey found that 64% of males took financial decisions individually, while the figure was only 33% for women. There are many compelling reasons why women should get more involved in financial planning and financial decision making. Here are some of them.
Longevity: Across the world, women live longer than men. In India, it is no different. According to Sample Registration Survey (2013-17), while males have a life expectancy of 67.8 years, it is significantly higher for women at 70.4 years, with it going up to 73.7 years in many urban areas. A longer life means a greater need for adequate savings to meet various financial needs. This includes financial provisions for old age regular expenses, including provisions for old age medical needs like treatment of ailments that typically affect women like breast cancer, osteoporosis, arthritis, heart ailments and cognitive impairment.
Career disruptions: Working women typically face disruptions during their work life due to many life events. While relocation after marriage could disrupt career progression somewhat, new home realities after the birth of a child can often cause significant disruptions for career and finances.
Typically risk-averse investing: This is, to a great extent, related to earnings disruptions we just discussed. Thanks to them, women end up investing in investment options that are low on risk and hence, less rewarding. Consequently, women end up accumulating less despite many of them diligently saving and investing regularly. That is why they also tend to become financially reliant on male family members.
Adverse family developments: Change in the marital status be it loss of spouse due to demise or a divorce, adverse family developments such as these make many women financially vulnerable. This is more or so for home makers and for women who opt for low income jobs in order to achieve a balance between work and family responsibilities. What also adds to this problem is the fact that in many families it is men that take financial decisions, control the family savings and accumulated assets, with little planning done to address the specific needs of women.
For self-employed women and home makers, one way of ensuring sustainable retirement savings effort is to direct retirement savings towards investments that have premature withdrawal restrictions. This approach is equally useful for working women. The two investment options to consider are Public Provident Fund (PPF) and National Pension Scheme (NPS).
Public Provident Fund (PPF) is a popular 15-year saving instruments which doesn’t allow partial withdrawals before the completion of the sixth year. The account can be started in a post office or in a bank, even online, for an amount as less as Rs 500. Not only do the contributions qualify for annual tax deductions of up to Rs 1.5 lakh under Section 80C, the annual interest and maturity amount is also tax free. This makes this government-backed savings instrument always providing high interest rates, very attractive. This means that currently PPF money receiving 7.9% interest annually is equivalent to an interest rate in excess of 11% for those in the highest tax slab thanks to the tax breaks.
Like PPF, women can also open an NPS account where they can make regular contributions starting with amount as low as Rs 1,000. They can keep saving in the account till age 60 after which they get 60% of the savings as a tax-free lump sum which they can contribute to major early retirement expenses such as relocation expenses. The remaining 40% of the NPS savings has to be mandatorily used for regular income by buying regular income providing annuities from life insurance companies. What makes NPS so good for women is that despite any number of relocations during lifetime, their retirement savings effort can go on unhindered since the account is backed on online information backbone that takes geography out of the picture. NPS pension fund management companies offer a range of fund options with varying mix of debt and equity investments. The investor can make a choice according to one’s comfort with risk. With leading banks and financial institutions offering NPS, for women it is a ready and easy-to-go retirement savings options that also provides additional Rs 50,000 tax deduction under Section 80 CCD(1B), over and above Rs 1.5 lakh eligible for annual tax deduction under Section 80 CCD(1).
Thrive despite income disruptions: Work life disruption after marriage, typically due to relocation, continuing education or family situation related sabbaticals need not impact the individual finances of women or their capability to contribute to family finances. The key to deal with these disruptions is to anticipate them well in advance and plan for them. So, how can this pan out? Let’s illustrate with the help of an example.
Suppose a double income family is planning to start a family in a little over three years. They could regularly invest in a debt mutual fund every month through the systematic investment plans (SIP) facility with the female spouse contributing more or all for this financial need. When the break is taken, she could dip into the savings for regular monthly income through a systematic withdrawal plan (SWP) facility which can provide regular income that’s more tax efficient than interest income. In case of such career breaks, women also need to ensure that they are free of financial obligations such as loan EMIs or they can be managed during the period. Also, the financial planning needs to ensure that essential contributions to retirement savings and insurance premiums continue. For double income families, all this can be easily achieved, if the family expenses get covered by the lower of the two incomes.
Make Ms Money: Work Numerous work life disruptions besides pay disparities based on gender often forces many women to invest lower risk, lower reward investments like fixed deposits (FD). In the long term, the money typically doesn’t grow ahead of inflation i.e. the purchasing power of women’s savings typically declines. For instance, in 2010, State Bank of India FD rate for a period of 1-2 years was 7.75% p.a. Since, the annual inflation in the last decade has been about 7%, the growth of the money after taxation would be negative. So, what is the way out?
The first step is to earmark a part of the savings for needs that will arise after 8-10 years or more. Next, invest this money in investments that invest a small or a large part in equities. But why invest in higher risk equity investments, say, equity-oriented or equity mutual funds? The answer is that over 8-10 years or more, equity and equity-oriented investments are more rewarding than alternatives. Of course, the key is to stay invested for a period this long. To action this approach, women can invest in hybrid and solution-oriented mutual fund schemes such as those focussed on children’s higher education or retirement. They are at lower risk compared to pure equity mutual funds and may be a good starting point. Regular investments can be done through SIPs.
For pure equity investments, a good starting point could be index funds or exchange traded fund (ETF) with investments of commissions, bonus, interests and refunds made to begin with, followed by a part of regular savings derived from regular pay. The same approach can be followed for those preferring life insurance-cum-investment plans like unit linked insurance plans (ULIPs), offered by life insurance companies.
Managing the unexpected: Whether it is the loss of spouse due to demise or the event of a divorce, women who actively contribute to the financial planning of their own and their family’s financial future are unlikely to see their financial progress get significantly impacted for long. However, it is important that apart from adequate health insurance coverage, there needs to be financial protection from adequate life insurance coverage. In many cases, especially when the male spouse is self-employed and has financial obligations, the life insurance policy is assigned to the wife under “Marriage Women Property” (MWP Act) provision so that the life insurance money can’t be claimed by anyone else. This brings us to the larger topic of estate planning through a Will which ensures that even after the demise of the spouse, the woman continues to get access to family’s savings and assets like home.
“You have come a long way, Baby!” went the lines of a famous American advertisement that became an icon of feminism. Despite the outstanding progress made by Indian women in different areas, a greater role for financial planning is yet to strike roots in their lives. This concise guide will provide a helping hand. Hopefully, achieving the goal of financial empowerment is not that far off.