Financial Acumen of Women Today

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This article was penned by Amisha Vora, Chairperson & MD, PL Group, for The Week magazine in March 2023.

A few weeks ago, India’s Under-19 team led by Shafali Verma outplayed England in the final and won the inaugural ICC Women’s U-19 T20 World Cup. And now, the Women’s Indian Premiere League has become a reality. I am sure we all have our favourite teams and players already!

Off field too, women have been achieving impressive milestones, and a generational shift in mindset is underway.

The Female Labour Force Participation Rate has risen to 25.1% in FY21, up from 18.6% in FY19. Additionally, payroll data released by the Employees’ Provident Fund Organisation (EPFO) shows that the share of women among new joinees rose to 27% in FY22, up from 21% in FY19. More women are joining the formal workforce and the ratio of women in leadership positions is on the rise.

Clearly, the corporate corridors, boardrooms, and C-Suite are no longer reserved for men. A direct consequence of more women entering the workforce is that they have started taking control of their finances. There is an increased propensity to save and invest.

LICs 2022 survey revealed that 91% women believe life insurance is necessary. Another survey, released in 2023 by Max Life Insurance, stated that the life insurance ownership was similar for both men (74%) and women (71%), with women closing in on gap swiftly.

But we need to remember that a key step in achieving complete financial independence and creating wealth is – portfolio diversification. It reduces the dependence on a single asset class, optimises returns, and protects against asset specific underperformance. Simply put, a well-diversified portfolio enables sustainable wealth creation.

This is where we see a considerable gap. While traditional investment avenues like bank deposits and physical gold continue to be the preferred choice for women, the importance of investing in equities isn’t being fully realised.

Here are some facts to consider:

#1 According to the RBI estimates, the average inflation rate in India is 6.7% for FY23. Inflation can impact one’s purchasing power and also lower the real returns. So, in order to not lose money, women need to ensure that the interest earned exceeds or beats the inflation rate.

#2 The interest rate on Savings Account is around 3%, and for Fixed Deposits, it is around 6% in 2022. Over the years, these have been unable to generate significant outperformance. Also, gold, which is considered to be a hedge against inflation, has severely underperformed at times. This means, by only investing in traditional instruments, your savings are losing value with each passing year.

#3 One asset class that has outperformed others over the long term, and delivered inflation-beating returns is Equities! For instance, out of the last six years, equities have given returns substantially higher than the inflation for 5 years. This makes it one of the best performing asset classes.

For wealth creation, capital appreciation is as important as capital protection. Equities are thus a must-have in every portfolio, along with other asset classes like debt and precious metals.

Start Early, Stay Invested

It is advisable for women to start investing in equities early on. The younger they are, the higher can be the allocation to equities as the threshold for risk is higher.

Also, by starting young, the capital has more time to appreciate due the Power of Compounding.

Let’s understand this with an example. The below table shows that to reach a corpus of ₹4.67 crore by the age of 60, you need to invest ₹2,050 per month – if you start investing at the age of 20. To reach the same corpus, you need to invest ₹8,400 per month, if you start at the age of 30!

Age Savings per month (in ₹) Savings per annum (in ₹) Total Savings by Age 60
20 2,050 24,600 ₹4.67 crore
30 8,400 1,00,800 ₹4.67 crore
40 35,600 4,27,200 ₹4.67 crore
50 1,80,000 2,16,00,000 ₹4.67 crore

Compounded Rate of Return assumed @ 15% per annum

This clearly shows the Power of Compounding i.e. how a small amount of money invested in the markets can grow into a substantial sum over a period. Not surprisingly, Albert Einstein referred to this compounding as the eighth wonder of the world!

It is also a great time to begin one’s journey in the Indian markets. I truly believe that Yeh Waqt Hamara Hai – this is India’s Golden Decade. Our economy has remained resilient, despite a global slowdown. Tailwinds of demographic advantage, strong consumption, and supportive government policies will continue to trigger growth in the years ahead.

When such favourable macro dovetails with women’s inherent investment instincts, it will lead to excellent wealth creation opportunities. I’m sure it won’t be long before women being the financial decision-makers at home becomes the norm.

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