The image of a modern woman has come a long way… from the image of a traditional homemaker to an all-rounder who manages family expectations along with a career.
This women’s day, it is time for you to think and act promptly to achieve financial security.
Let us start with the basics:
1. Financial Plan
This is the foundation stone on which the building of your financial security is built.
It is a simple three steps process:
Step 1: Define your “Goals”
Think what you would like to aim for after say 10, 20 and 30 years.
It could be anything from buying a house to getting a second degree or starting a free-lance business of your own to going for a long vacation or any other goal… Note down the target dates and the present value of each goal.
Step 2: Understand you “Risk profile”
Most investment advisors / financial planners have a risk profiling tool. This will test and bring out your risk profile in 10 to 15 minutes.
Broadly, risk profile is classified as: Conservative, Cautious, Moderate and Aggressive.
Step 3: Understand you “Income” and “Expenses”
List down all items of your monthly income and expenses so that you get a clear picture of your monthly savings…
Do remember that you will have tomake efforts to maximize your monthly savingsby spending only on “needs” and avoiding “wants” and “desires” so that these savings are then invested in financial products which match your risk profile and which will help you achieve your “goals”
Step 4: Lump sum money
Whenever you receive such bulk amounts either as lottery, bonus, and inheritance or from any other source, use this money to top up your investments.
Step 5: Choosing the right investment product
Take these steps in the order of priority
If you have people who are dependent on your income, then take a term insurance plan for a sum assured which is equal to your household’s monthly living expenses for the next twenty years.
You can factor in 8% p.a. rate of inflation to arrive at the final amount. Many calculators are available on the internet which you can use to arrive at the amounts. You can also approach a financial planner or investment advisor for guidance.
If you do not have any dependents then you do not have to buy a term insurance plan.
Medical and hospitalization expenses are very high now-a-days and an unforeseen disease/accident can completely disrupt your financial plan, by reducing your bank balance substantially.
To protect yourself and your family, buy a low-cost family floater mediclaim policy.
c. Emergency funds
Invest an amount equal to 6 months of your living expenses in a liquid fund or fixed deposit to take care of any emergencies.
d. Stock OR Equity mutual fund SIP (systematic investment plan)
It has been proven thatequities have outperformed Inflationby a wide margin in the long term.
The value of BSE Sensex has increased from an index level of 100 in 1978-79 to 24500 levels in 2016 which shows that returns on a long-term basis are in the range of 13 % to 15% p.a.
Additionally when you invest for the long-term say 10 years or more… all returns are tax-free as per current tax laws.
So, after you have invested as per the three steps listed above, put all your remaining monthly savings in a Stock OR Diversified equity mutual fund portfolio by registering for a SIP (systematic investment plan).
The benefits of SIP are:
It removes the emotional guesswork of trying to predict the stock prices and fund net asset values asmaking predictions is a complete waste of time.
It gives you acomplete disciplinein buying stocks and funds at pre-defined time periods
So, when the stock prices and fund values are down, then for the same fixed amount of money, you get higher number of shares and fund units and conversely when the stock prices are up, you get lesser number of shares and fund units, therebyover a long period of time, you get the average price.
You can invest through a Stock SIP OR a diversified equity mutual fund SIP
e. Which funds to choose?
Choose the funds which are aligned to your risk profile (Example: if your risk profile is aggressive, then you can invest in small and mid-cap funds)
Spread your investment amount equally into three or four funds.
Contact your financial planner or investment advisor today to know which equity mutual fund schemes is the right fit for you…based on your risk profile.
f. When to Sell?
You should sellONLYwhen you have achieved your goal OR when you need funds in a real medical emergency situation.
Do not sell because you expect the market to fall further. You may be proved wrong if the market goes up and you will be disturbing the “average price” of your holdings, which you have built with discipline.
g. What to do if I have some additional money?
As soon as you receive additional money from any source, you should top-up OR add to your SIP.
h. Do not be greedy for higher returns OR be fearful of losesOR Do not simply wait for a certain stock price or market level
History has shown that stock markets always reward investors who have patience, discipline, emotional stability and a long time frame.
Now, Let us take an example of the “Power of SIP”
Example: Anita Sharma age 23 years has just started working in a BPO. She saves and invests Rs15000 every month in a systematic investment plan. Shedoesnot withdrawthat money ever till sheretiresfrom work.
As she grows older, her salary also grows but she invests the same Rs15000 every month. (Ideally she should increase the amount since her salary has increased)
She just keepsinvesting regularly in Equity mutual fund–SIP with full discipline and commitment
Assuming she gets areturn of 12% p.a.what do you think is the money she is earning?
Well, let’s check.
After 30 years (her age is 53 years) her money grows toRs 5.24 crores!
After 35 years (her age is 58 years) her money grows toRs 9.64 crores!AND
After 40 years (her age is 63 years) her money grows to Rs 17.64 crores!
Contact your financial planner OR investment advisor today!
All the best for achieving financial security!!
Click here to learn how to balance between savings & investment.
Stocks and Equity mutual fund returns are market linked. Please read scheme offer document carefully before investing. Returns of 12% p.a. given in this article are a hypothetical example for the purpose of illustration only and not a guarantee. Stock OR Equity mutual Fund – SIP (Systematic investment plan) is a scientifically proven technique. It does not guarantee any fixed return.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.