Women of today are strong economic contributors to the society. They choose to work in the organized sector, set up small to large scale business or co-operative self-help groups, all contributing to their family's income and eventually, to the nation’s GDP. And with economic freedom comes responsibility of financial planning. A woman tends to save, which is her natural predisposition, yet she is not at par with men when it comes to creating wealth.
HDFC Life ValueNotes Life Freedom Index, a survey conducted by HDFC Life in association with ValueNotes reveals that Indian urban women score low in financial awareness of various life events and products. There is a glaring gap between product knowledge and event awareness. Moreover, only 22% of urban women say that they have a comprehensive financial plan to cover short as well as long term goals, while 42% of them have only a basic plan. The survey was conducted among urban women in 11 Indian Tier 1 and Tier 2 cities.
Women’s Financial Needs
Women face a number of unique risks, and when it comes to money and investing their financial needs differ.
First, social structure places greater burden. Pregnancy comes with its own joy and financial challenges. Most opt out of career, or settle down for lower paying jobs to balance career and motherhood. Many face complications, which leaves them emotionally and financially drained. Mothers often take prolonged leave of absence from their careers to take care of kids or ageing parents or both. This depletes their income source and the savings gap could take years to recover.
Second, women’s genetic and biological structure makes them vulnerable to medical and health situations that are unique. They bear higher risk of cervical and breast cancer. Medical advancement has made these illnesses less severe, but the financial drain of fighting these diseases is sufficient to wipe out a lifetime of savings of the entire family. With new demographics and social changes, women can be single through widowhood, divorced or choosing never to get married.
Building an asset and aiming to be self-reliant and sufficient to last these possibilities requires steady planning. And starting young makes a difference as with longer investment horizon, gains are substantial. In initial stages of career, when responsibilities and liabilities are less, most of the savings can be planned and implemented.
Key Steps towards Financial Planning
Step 1: Defining the Objective
Women should clearly set a realistic financial objective. It could be purchase of home, building a kitty for post retirement income, starting a business, buying home, overseas travel, buying a car, creating fund for child’s education and marriage etc. Once the objective is set, it’s important to define the amount of money and the time horizon required to accomplish the goal.
Step 2: Preparing a Plan
A financial plan starts with income and expenses and also projecting future expenses and income. This gives a fair idea of what amount is required to meet various current and future financial objectives. Various factors such as time horizons, risk appetite, and type of investment avenues available are also considered. It’s important to build some form of contingency plan, so that savings can continue even in case of unforeseen circumstances like illness, death of spouse or loss of job. For those who stay at home, they can always invest the household savings into any of the investment avenues available in the market (refer below).
|Investment /Savings||Equity, MFs, ULIPs, Traditional Insurance Plan,
Pension Plans,Debt instruments like bonds,
G Sec , PPF etc
|Financial Protection||Life Insurance Plan
& Health Insurance
|Tax Savings||Insurance Plan, ELSS,PPF, M Fs,
Tax Savings Bonds etc
Proper diversification of financial assets is essential to generate sufficient income from a portfolio and allow inflation to not reduce the portfolio’s purchasing power over time (and, given women’s longer life spans, the long-term is critical). Consulting a certified financial advisor is advisable for the right approach to a financial plan.
Step 3: Starting to Invest
Discipline investment is the key towards success of a financial plan. Today, most of the investing can be done online. Most financial advisors help in documentations. However, it is important to read and understand the nature and associated risk of each investment instrument, before investing.
Step 4: Reviewing thePlan Periodically
Once investment starts, to ensure that you stay on the course, it is advisable to review the plan in line with increased income or expense, new assets or liability acquisitions or changing market conditions. For instance, a plan should be reviewed to gauge the performance of various investments. When stock markets change course over a period of time they may disturb your asset allocation. So you may have to redeem some of your equity investments or buy more of them depending on how much risk you are willing shoulder.
Step 5: Redeeming Investments
As the milestone you have been saving for approaches near, you would need to redeem your investments. In case of a life insurance policy, it involves submitting your policy documents to the life insurer and following up for the maturity proceeds. You may also need to sit down with your financial consultant and understand the issues of taxation in India, involved with the redemption of your investments.
Ms. Padalkar joined HDFC Standard Life in August 2008 after a seven year stint as Executive Vice President-Finance at WNS Global Services, an NYSE listed leading global business process outsourcing company. Vibha's key achievement during her tenure at WNS was to lead a team that successfully completed the Group's IPO on the New York Stock Exchange in a short span of six months. Prior to WNS, Vibha was with Colgate Palmolive India.View Complete Profile
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