First goals, and then products

Published in Mint on Mar 07 2016

 

The basics of financial planning don’t change for women investors. Setting financial goals, discovering your risk appetite and finding products that are in line with your comfort and your goals continue to be the cornerstones of financial planning. The products remain the same, but some have added benefits for women. Here’s how to use them.

Insurance

A health insurance policy, whether covered by employer or not, is a must. Go for a policy that pays for hospital bills and reimburses expenses incurred before and after hospitalisation. You could consider an individual policy or a floater policy that considers the entire family as one unit.

“Gender-based pricing is not adopted for health insurance in India as yet but there are policies that cover maternity benefits and pre-natal and post-natal expenses. Some also cover a newborn baby from day one under the mother’s policy. Also, there are women specific critical illness products,” said Shreeraj Deshpande, head, health insurance, Future Generali India Insurance Co. Ltd.

However, do look at the price as extra benefits may come at a cost and buy a comprehensive plan. “Maternity cover is a good option but also look at the price and the waiting period. In terms of critical illness covers, go for one that covers maximum illnesses instead of just going for a women specific plan,” said Kapil Mehta, co-founder, SecureNow Insurance Broker Pvt. Ltd.

Next, take stock of your assets and ensure that the big ones, such as your house, are insured. And before you put a lid on your insurance needs, consider life insurance. If you are contributing to the household income, life insurance is a must.

You can buy a term plan online at competitive rates. “Women, typically, pay lower premium. The rate is of a person 2-3 years younger. But getting a higher sum assured can be difficult for homemakers or those with part-time jobs,” said Mehta.

Investing

At a basic level, you need to choose investment products according to your goals. “Most of my clients are women and one of the biggest problems I see is of unawareness. Many working women who are managing families don’t have time. And many older women, over 55 years of age, who may be widowed or whose husbands no longer work, find themselves responsible for managing money. They are wealthy but gullible; just the right profile to be missold to,” said Lalitha Jayabalan, a Chennai-based financial planner.

Having goals will help you choose products. Short-term goals may include planning for a vacation or creating an emergency fund. “Most women spend on their children’s needs, so having enough money for this is a short-term goal,” said Suresh Sadagopan, a Mumbai-based financial planner.

The most prominent characteristics of products for short-term goals are lower volatility and higher liquidity. Stashing money in a bank account alone doesn’t help.

“Fixed deposits and recurring deposits are popular with those in lower tax brackets for short-term goals. Those in the higher tax brackets should also consider short-term funds and arbitrage funds for short-term goals, and also to build an emergency corpus and sustain it,” said Surya Bhatia, a Delhi-based financial planner.

“Short-term funds are liquid but are treated as debt products, so if you withdraw before three years, you get taxed at marginal rate. But you can get a little more than 8% on these, which post-tax is 5.5-6%. Arbitrage funds have the same tax treatment as equity funds, which means no tax on withdrawal after a year. These are good products to consider for short-term goals,” said Sadagopan.

While arbitrage funds have favourable tax treatment, returns are more stable for short-term funds.

For long-term goals such as retirement, the focus should be returns. “Many women tend to have a shorter working horizon of 10-20 years,” said Bhatia. “We find that many women investors are risk-averse. But equity investment is a must,” he added.

Equity mutual funds are a good place to start. “Starting off on equity-linked savings schemes (ELSS) pays off. You get a tax deduction and the lock-in prevents reaction to immediate market volatility,” said Jayabalan. Other equity mutual funds are also an option. “We recommend direct plans of equity mutual funds. Exchange-traded funds (ETFs) are also good but the market is currently not developed. Also, in India, actively managed plans are giving better returns,” added Sadagopan.

In the debt space, consider Public Provident Fund (PPF), which currently gives a tax-free rate of 8.7%. For Employees’ Provident Fund (EPF), “we still have to see how the corpus will be taxed, but the Budget announcement does put EPF at a slight disadvantage. Currently, it gives 8.8%, and only 60% of the corpus may be taxed on withdrawal, so it’s still a good product. Moreover, if you annuitise 60% of the corpus, you don’t pay any tax. This may develop the annuity market,” added Sadagopan.

For retirement needs, you may also consider the National Pension System.

Other products

Mint Money doesn’t see real estate as an investment asset, but more as a goal. And for women, there are specific benefits here. “Banks and even non-banking financial companies (NBFCs) give home loans with reduced interest rates for women applicants or even women co-applicants. Typically, these are about 5 basis points lower,” said Adhil Shetty, co-founder and chief executive officer, Bankbazaar.com. Plus, many states have lower stamp duty on properties owned by women.

Then there are special savings bank accounts that may offer free ATM transactions or free money transfer facility, added Shetty.

Instead of picking financial products in a random order or only to save taxes, chalk out your goals, get your asset allocation in place and then pick products accordingly. If needed, seek professional help.

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