1 April 2021

Debt Hybrid Funds are great for women to start their journey of wealth creation

It is no secret that women in India save a lot of money. However, these savings don’t translate into investments. Women are financially prudent when it comes to savings but they are a little hesitant to go beyond traditional saving instruments like deposits, insurance and gold. They might perceive equities as a complex financial instrument that is too volatile for their taste. An approach like this means that they reduce their chances of growing their wealth in the long term. This is common for both salaried women and home-makers.

A reason why women prefer to save rather than invest is because they need easy access to their money. A survey by DSP called The DSP Winvestor Pulse 2019 says that taking large investment decisions in a family, such as retirement or buying a home, is seen as the man’s job. Women save for goals like a child’s education or marriage. They play a stronger role in smaller financial decisions like buying household durables or buying gold. Only 33% of women take independent financial decisions.

If you are a salaried woman, it is easier for you to have control over your money. While it is essential to park a certain part of your savings in easily accessible instruments, you may also invest around 20%-30% of your savings into instruments that will help you grow your wealth.

A smart way for women to enter the world of investing is by looking at mutual funds that carry minimal risk. A good option may be conservative debt hybrid mutual funds. These mutual funds try to combine the best of both worlds: Debt and Equity. They invest around 75%-90% of their portfolio in debt instruments like government bonds, debentures, treasury bills and other government securities. All of these investments are generally considered as safe as the risk of default on them is low. The balance 10%-25% of the portfolio is invested into stocks that may deliver better returns than traditional saving instruments. Overall the total allocation to equity is restricted at 25%.

Take a look at the returns of two Conservative Debt Hybrid Funds recommended by Kotak Mahindra Bank over a period of time:

Mutual Fund 1-Year 2-Years 3-Years 5-Years 10-Years
Kotak Debt Hybrid Fund 8.46 10.46 5.96 8.11 8.56
SBI Debt Hybrid Fund 6.69 8.87 4.66 7.03 8.09

Source: MFI explorer. Data as on 29th October, 2020

These returns are clearly higher than the traditional forms of savings. Both these funds invest less than 24% of their portfolios in equities which means that the investor’s risk is limited as compared to pure equity fundshave worked hard, saved well, and are trying to become financially independent. Debt hybrid funds can help you on your journey of wealth creation.

To get started on your investment journey, please set up a visit with your finance professional at your bank to get started on your journey.

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