Are you planning to gift your sister some fresh currency notes this Raksha Bandhan? But how about gifting her something that will last longer – something that will empower her financially? Imagine helping her become financially independent or teaching her the basics of money management. Whether it’s an investment in her future or a contribution to her financial goals, a cash gift could be the most meaningful gift you give this year.
According to a report by DBS Bank India-CRISIL, “47% of women seek advice and information from family members while making financial decisions. On the other hand, 27% of women turn to financial advisors or chartered accountants for advice.”
So why not make this Raksha Bandhan special and educational? Empower your sister so that women no longer lag behind men in financial education.
How can you support your sister financially?
Give her financial literacy
Consider gifting your sister financial literacy this Raksha Bandhan. But how can you do it? Start with the basics of budgeting and saving.
“You can start by creating a master budget for them where you record all their income and expenses. Make them familiar with the 50/30/20 rule,” says Siddharth Maurya, founder and managing director, Vibhavangal Anukulakara Pvt Ltd.
The 50/30/20 rule states:
50% for needs: Essential items such as food, rent and utilities.
30% for wishes: Things like eating out, hobbies, or shopping for pleasure.
20% for savings and debt repayment: Save or reduce debt.
“Show her how to use budgeting apps or spreadsheets to help keep track of things. Then help her set up automatic transfers to high-interest savings accounts for emergencies and future goals,” Maurya explains.
You can also teach her how to cut unwanted expenses, increase her income, and harness the power of compound interest. This knowledge will give her the confidence to manage her money, reduce financial stress, and reach her financial goals faster.
Invest in real estate
If you have money, you could gift your sister a real estate investment this Raksha Bandhan. A carefully selected plot of land or apartment can be a stepping stone towards her financial independence.
“The real estate market, like any other market, has its ups and downs, but has proven to be one of the most reliable long-term investments,” says Anurag Goel, Director, Goel Ganga Developments.
“Giving a gift of real estate not only gives her a tangible asset, but also the opportunity to generate passive income through rentals or appreciation. It is a safety net for her financial security and a tangible asset that can grow over time and benefit future generations as well,” he adds.
Remember that location is key. Look for areas with emerging infrastructure or growing commercial centers. Consult a real estate expert to make an informed decision.
Build a diversified investment portfolio
Another way to make this Raksha Bandhan special is to help your sister build a diversified investment portfolio. This could include a mix of stocks, bonds, mutual funds, and even alternative investments like REITs or commodities.
“A balanced portfolio provides growth and stability. This is how you help her build wealth,” says Aman Gupta, director of the RPS Group.
“Understand your sister’s financial goals and risk appetite. You can include blue-chip stocks for stability, growth stocks for high returns and bonds for regular income. Don’t forget to add index funds for broad market exposure and some international investments for geographic diversification,” explains Gupta.
Not only will this gift be useful to her financially, it will also teach her valuable lessons about money management and the importance of diversification – never putting all your eggs in one basket.
Other suggestions:
Open a fixed-term deposit or term deposit account:
Encourage her to open a Recurring or Fixed Deposit (RD or FD) account. You can transfer the amount to her account on a monthly basis before it is deducted from her savings account and deposited in her Recurring Deposit account. Both fixed deposits and recurring deposits will earn her a higher interest rate than a regular savings account. Both fixed deposits and recurring deposits are suitable for short-term goals.
Systematic Withdrawal Plans (SWP):
Systematic withdrawal plans (SWP) allow your sister to withdraw a fixed or variable amount on a regular basis, be it monthly, quarterly or annually. “The main benefit of an SWP is that it provides a stable income,” says Aditya Kuchibhotla, Chartered Accountant and Executive & Business Coach. This is particularly useful for those who need a regular income from their investments, such as retirees. It also reduces the risk of having to sell all investments during a market downturn.
How does a SWP work?
A. Choose an investment fund: Select the mutual fund you want to invest in and open an investment account with the fund company.
b. Select investment mode: Decide whether you want to invest through a SIP (Systematic Investment Plan) or a lump sum.
C Setting up the SWP: Instruct the fund company to withdraw a fixed amount from your fund at regular intervals (for example, monthly, quarterly or annually) and transfer it to your bank account.
D. Withdrawal process: On the specified payout date, the fund company will sell an appropriate amount of your investment fund shares to cover the payout amount and credit it to your bank account.
f. Ongoing process: This process will continue for the specified period or until you cancel the SWP.
F. Remaining balance: The remaining amount of your fund will continue to generate returns based on the performance of the underlying assets. However, your account balance will decrease over time as you continue to withdraw money through the SWP.
Pension fund:
A pension fund is a practical gift that will help your sister be financially secure in her retirement. By setting up a pension account and making regular contributions, you will enable her to save for a comfortable future. Contributions to pension funds are tax-free up to Rs 1.5 lakh under section 80CCC.
There are two main ways to invest in pension funds:
One-time investment: This method is ideal for people with healthy cash reserves and involves investing a significant amount at once.
Systematic Investment Plan (SIP): A fixed amount is invested each month, making it easier to manage and increase investments over time.
Real estate investment trusts (REITs):
REITs are a unique gift idea that allows your sister to invest in real estate without owning it outright. LC Mittal, Director, Motia Group, recommends REITs as they offer opportunities for rental income and appreciation in real estate such as commercial buildings and healthcare facilities.
Advantages of REITs
Higher returns:
REITs offer good long-term returns and help investors steadily grow their wealth over the years.
Stable source of income:
REITs must pay out at least 90% of their taxable income as dividends, providing a regular and attractive source of income – ideal for retirees looking for passive income.
Diversification and accessibility:
REITs provide access to a diversified real estate portfolio that includes residential, commercial and industrial properties without the need for significant upfront investment. This diversification reduces the risks associated with any single property or market.
Disadvantages of REITs
Market sensitivity:
REITs are affected by market fluctuations. Economic downturns or changes in interest rates can affect their value. A long-term investment perspective is necessary to manage volatility.
Interest rate sensitivity:
Interest rate changes, influenced by the adjustment of the repo rate by the Reserve Bank of India (RBI), directly affect REIT returns. Higher interest rates usually reduce the value of REIT shares.
Tax implications:
Dividend income from REITs is taxed at the investor’s ordinary income tax rate, which may be higher than the capital gains tax rate. Not all REIT dividends are eligible for preferential tax treatment. To understand the tax implications, it is advisable to consult a tax advisor.
Gold investment
Although gold is a valuable investment, managing its purity and liquidity can be challenging. Introduce your sister to paper gold, such as government bonds or digital gold funds. These options offer the benefits of a gold investment without the hassle of storage and security.
health insurance
As you age, healthcare costs can be a significant burden. Giving your sister a health insurance policy as a gift can help ease that financial burden. This gift will ensure she has access to quality healthcare without worrying about the cost, and will provide her with peace of mind and financial security.
Strengthen your entrepreneurial spirit
“If your sister dreams of starting a micro-business from home, consider providing her with the resources she needs to make her dreams come true,” suggests Vinnaayak Mehta, founder of The Infinity Group. Whether it’s a gardening business, cooking classes, art classes or a mini bakery, support her efforts by offering her financial help and support in starting her business.
