Where should a working woman invest Rs 20,000 every month?

If you are reading this story, dear reader, we assume you have taken the first step to achieving financial independence - making your own money! Or perhaps your source of money is not a salary but savings from your household budget or monthly allowances. This story is for you, too.

The dismally low financial literacy rates among women in India are not new. The concept of financial security is even more alien. However, financial security allows one the option to take a safe exit from unfavourable situations or face other financial challenges. This is why being financially secure is essential regardless of your marital status or financial dependence on someone else. You can stride towards this by making your money or savings grow through investing. That said, the broader principles of investing are universal for everyone. So, regardless of who you are or what your gender is, our guide below will help you take the first steps towards building an investment portfolio.

1. Investment horizon: Your investment horizon, or the number of years you are ready to invest for, is crucial in deciding where to invest. This period is the time you plan to take to reach a financial goal, like buying a car or a house, funding higher education etc. For long-term goals - those that are at least five years away - investing in equity is ideal as it helps generate inflation-adjusted returns. On the other hand, for short-to-medium-term goals that have to be met in a few months to a few years (less than five), it is better to stick with the safety that fixed income offers.

2. Equities for newbies: New or inexperienced equity investors are more likely to get unnerved during periods of market decline. It is often tempting for them to give in to bearish sentiment and exit their investments. However, staying put for the long haul is crucial to reaping the eventual benefits of compounding. Hence, a beginner should start investing in equity with an aggressive hybrid equity mutual fund. Aggressive hybrid funds invest around two-thirds of their portfolio in equity and the remaining in fixed income. Their partial allocation to debt cushions them against steep market declines, so they tend to fall less than pure equity funds during periods of volatility. This helps soothe jittery investors, allowing them to stay invested for long. Moreover, since aggressive hybrid funds offer dominant exposure to equities, they help investors earn decent returns over the long term.

3. Fixed income for short-term goals: Equity investments should be avoided for short-term goals as they can exhibit high volatility during shorter tenures. Therefore, one can invest in a bank recurring deposit or liquid funds for a financial goal that has to be met in a few months to a year. These are generally ideal for setting aside funds for emergencies or any surplus money that may be required on short notice. In case of a slightly longer investment horizon (but less than five years), one can consider short-duration debt funds.

Also read: A four-step guide to bringing women closer to financial empowerment