Why do women need to embrace equities

Synopsis : A quick calculation throws up a startling number – during a lifetime of working, women end up with 50% lesser money than men

Every year Women’s Day celebrations get bigger, but so does the gender savings gap. The gender pay gap of 20% in India is widely spoken about, but it is the gender savings gap that needs attention too. As per the Gender Wealth Equity report 2022 by WTW showed the gender wealth gap in India is 64%.

One of the reasons is due to the preference for traditional savings instruments, which though safe, do not beat inflation and hence do not contribute to wealth creation. Ladies, its 2023, high time you change your investing criteria. You have changed in every other aspect of your lives but your thoughts on money management remain rooted in your parents and grandparents’ times. The change is imperative now!

A quick calculation throws up a startling number – during a lifetime of working, women end up with 50% lesser money than men. Furthur, this corpus will not last during retirement, meaning dependance on partner or children. While the pay gap exists and it is not in your hands to change it. What you can control is how long you work, how much you save and where you invest your hard-earned savings.

According to Centre for Monitoring Indian Economy (CMIE) and Centre for Economic Data and Analysis (CEDA), in urban India, women’s employment was reduced by 22.1% in 2021 compared to 2019. This is because of multitude of family caring responsibilities and female guilt of not being able to fulfil their traditional roles to the fullest. Being a mother myself, it is extremely challenging to manage work and home but it is the desire to be financial independent that drives me to balance all the responsibilities. Women need to stop feeling guilty about not making life perfect for others and focus on what matters to them. A parallel would be the attention given to physical health and appearance. Taking a career break sets you back in many ways, the biggest being financially. Upskilling and getting back is not easy and remember, investing in yourself and skill building will lead to higher incomes and hence wealth in the future.

Higher income doesn’t translate to higher wealth. Lifestyle expenses take away a large part of income. Higher the income, higher the expenses due to international schools, vacations and related activities. Of course, one should spend and enjoy life, but it is good to have some limits on the expenses. 40% of the take home income should be invested with the balance being used for expenses and EMIs.

Saving well is important, so is investing well. In the last 43 years, equities have returned 15.40% p.a., Gold 8.85%p.a, Bank FD – 8.05%p.a. while average inflation has been 7.61% p.a… On an inflation adjusted basis, equities have had good outperformance but equity holding by women is abysmally low in India. This stems from the fact that it is difficult to figure out which stock to buy, when to enter and exit and the fear of being judged on making losses.

In the short-term equity markets are volatile but in the long term, markets make higher highs and higher lows! Also, the upsides are higher than the declines. No one can time markets and only remaining invested for at least 7-10 years can work in your favour to avoid losses.

Within equities, you can invest in stocks, stock baskets, mutual funds and investment linked insurance plans. With more than 5000 stocks in India, evaluating stocks, getting the right information to do so and building an exit strategy is cumbersome and needs a large time commitment. Costs eat into returns in Investment linked insurance plans. An easier option is to invest into equity mutual funds, which are low cost and come with tax benefits. Within equity mutual funds, it is important to diversify between large, mid and smallcap categories as no one category remains at the top always. A flexicap fund can give you this diversification. Nifty 50 index funds and midcap funds can also be considered for further diversification.

While investing, do not forget to regularly increase the equity SIP amounts every year. A 25-year-old investing ₹5000 per month in a SIP and increasing it by 10% every year will have ₹3.53 cr at the age of 60. If the SIP amount was kept constant, the value at age 60 would be ₹1.91 cr.

This International Women’s Day, embrace equity for financial equality.

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