#BQMutualFundShow: What Women Should Consider While Investing In Mutual Funds
For a first-time woman investor, hybrid funds are a good option.
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Hybrid funds should be the preferred choice for working women who have just started investing in mutual funds, investment experts said on BloombergQuint’s weekly series, The Mutual Fund Show. These funds have a smaller proportion allocated to equities compared to debt, providing a good risk-reward equation for first-time investors, Radhika Gupta and Harshad Patwardhan of Edelweiss Asset Management Company said.
Here are edited excerpts from the conversation.
Let’s assume homemakers have a steady stream of money coming in either from past investments or other avenues. They will look for liquidity and safety. Can mutual funds solve this issue?
Harshad Patwardhan: Yes, it does. By definition, open-ended mutual funds give you enormous liquidity. In terms of risk return spectrum, there are various mutual funds which you can choose depending on your risk appetite. Particularly, for women who are just starting to invest in equities, there is a set of solutions called hybrid funds which are multi-asset funds, wherein you don’t have 100 percent exposure to equities but you have a smaller proportion allocated to equities added with debt. That’s a good risk reward equation for somebody who has just started to invest in mutual funds on the equity side.
How simple or difficult will it be for a homemaker or a woman who is starting to earn to start investing in funds?
Radhika Gupta: The process is reasonably simple. Most investors are KYC-complaint or can become KYC-complaint easily. There are a number of good quality financial advisors who can guide you with the process of choosing what funds to invest in. The mutual fund industry now makes it simple for you to understand the range of fund offerings. Once you start, it’s a very simple process. You make an investment, you can track the price of the investment every day just like you track the price of the stock. And you have comfort that it’s a regulated investment. You can take your money out from an open-ended fund any day of the week.
How does one break the veil of thought that investing in gold is safer compared to investment in mutual funds?
Harshad Patwardhan: If you choose a mutual fund, an asset management company and a fund scheme which invests in quality businesses then you shouldn’t lose sleep over it. History has shown that quality businesses in India have compounded at a very good rate. Even if we look at an average, say Nifty or Sensex which is like an aggregate. Over long periods of time they have been delivered 15-17 percent earnings growth and over long periods of time markets have mirrored those kind of returns. If you choose the right AMC and the right mutual fund, keeping quality in mind, I don’t think you should lose your sleep over it.
To a first-time women investor is an equity fund the only option?
Harshad Patwardhan: The most important thing to do is to consult a good financial advisor and draw up an asset allocation in line with risk appetite and future needs. Then decide which are the kind of funds that I want to invest in. The proportion can be 30 percent equity, 50 percent pure equity, some debt. The hybrid funds which I was alluding to offer you the advantage of investing in multiple asset classes while still having the tax advantage of investing in an equity fund.
Radhika Gupta: It’s very important, men and women, and especially for women investors, to identify what stage and what your investing needs are. An advisor would assist you in this. If you are a young woman who has just started earning, you will probably have a higher risk profile. So could you do 60 percent in equity and 40 percent in debt? Probably. If you are 35 or 40 and you are a homemaker and you don’t have a large stream of income or you are someone who is retiring and looking for capital protection, then the right answer is certainly not 100 percent equity. It’s something like 20-30 percent equity and 80 percent fixed deposits. You could take two approaches to this problem. One is to decide how much equity I will do and how much debt I will do. If you don’t want to do that decision making, then you can turn to hybrid funds which will solve that problem for you.
How do women who are working, who have say a housing loan EMI to pay and other daily expenses, what are the avenues for them to invest in?
Radhika Gupta: EMIs are a problem or conundrum that are most of us are dealing with. There is a certain amount of interest that you pay on an EMI. Ideally, you should be able to build a fund portfolio that is a combination of debt, equity, etc that gives you...so if your home loan is at 7-9 percent, ideally you can build a mutual fund portfolio that will generate on a long-term basis something like 12 odd percent by blending a cross section of asset classes. Mutual funds offer a Systematic Withdrawal Plan (SWP) by which you can take back the money on a monthly basis and generate some kind of liquidity after some time.
For women who are in the age of 30-40, could they opt for such an option?
Radhika Gupta: SWP is a timeless option because as your money compounds, you are able to take it out on a monthly basis and then maybe pay off your home loan.
What are the fund options for a woman investor who has a steady stream of income and expenses and who may be therefore a bit more conservative and also for a homemaker who doesn’t have a steady flow of income?
Shalini Dhawan: There are many fund options. For a salaried woman, she could take a balanced fund or a hybrid fund option with an SIP within that, where if she is investing Rs 100 then Rs 65 goes into the equity market and Rs 35 goes into the fixed income segment. She could look at an SIP within that.
Based on our research and long-term experience of suggesting to clients, there is an HDFC Balanced Fund which has a good track record. We also have balanced fund in the Birla AMC, Birla Balance 95 is also a good option. While suggesting funds we also keep in mind that there has to be a long-term track record that a particular scheme has shown because that instills confidence in someone who is looking at mutual funds for the first time.
If we shift to the homemaker scenario, she could look at balanced funds but I would suggest a liquid or a debt option. Because she could be doing a recurring deposit or a bank fixed deposit and is comfortable with a straight-line investing method. So, it could be easier to explain to her a debt fund and systematic investment in a debt fund because in likeness it’s close to an RD. That could be one difference. Probably take a span of six months or a year before you graduate a homemaker to the next set such as a hybrid fund rather than going for a diversified or equity-oriented fund.
If a homemaker woman wants to buy a piece of jewellery five years down the line and if she can borrow the money from her husband, then what should she do?
Shalini Dhawan: If she can borrow money from her husband and get into a gold SIP which are available from mutual funds today which are gold savings fund. They take your money and invest it into a gold ETF or in physical gold and therefore you do not have to put a lump sum. You can invest every month in a five-year horizon. Investing in a gold fund is exactly like saving to buy a piece of jewellery. The corpus that she is generating will be very much line in with which she is hoping to end up with. So, that is the choice. One name is the Reliance Gold Savings which invests in Reliance Gold ETFs which is originally the benchmark BeES now bought over by Reliance.