Exploring Multi-Asset Investment Strategies for Women Entrepreneurs

✍️ Opinions

Subham Kumar

Feb 28, 2024 — 5 min read

Exploring Multi-Asset Investment Strategies for Women Entrepreneurs

The article has been contributed by Nehal Mota, Co-Founder & CEO, Finnovate.

Talk of exemplary women entrepreneurs in India, and the names that come to mind are Kiran Mazumdar Shaw, Falguni Nayyar, and a few others. Today, the landscape for women entrepreneurs has vastly changed. Several young women entrepreneurs are emerging; who prefer the challenges of striking out on their own, over the security of a full-time job. However, the more things change, the more they remain the same.

What has not Changed?
Start off with a Financial Fitness Plan
First Building Block – Pay Yourself Adequately
Second Building Block – Get Adequate Insurance
Third Building Block – Set Aside an Emergency Fund
Fourth Building Block – Time to Plan a Roof over Your Head
Last Building Block – Take Calculating Risks in Investing

What has not Changed?

What has not changed is that women must look at their finances more carefully and closely. It is not enough to have an insurance cover and a bank balance. You need to defend your financial turf and ensure that your wealth grows. The challenge is a lot more pronounced for women entrepreneurs. They do not have a secured income in business and while costs are front-ended, revenues and profits tend to be back-ended. Secondly, women need to look at multiple asset-class exposures to combine security, steady income, and capital growth. While there is no royal route, here is a Financial Fitness Planning model that women can explore.

Start off with a Financial Fitness Plan

The word Financial Fitness Plan sounds esoteric. However, a women entrepreneur living amidst uncertainty on the flows side deserves greater certainty of the future. While you cannot predict outcomes, you can plan for it. The Financial Fitness Plan must be predicated on the troika of asset allocation, regular investing, and the power of compounding. This ARC model lies at the core of what women entrepreneurs should follow. Asset allocation is the mix of equity, debt, and other assets. We will look at this point in greater detail later. Regular investing is about syncing investment outlays with your inflows via SIPs and syncing SIPs with goals. Lastly, compounding is the discipline and persistence of staying invested for the long term, since it is time and not timing that generates wealth in the long run.

First Building Block – Pay Yourself Adequately

Being a women entrepreneur calls for a high level of financial discipline. It essentially means that you cannot afford to splurge money on conspicuous consumption. However, there are basic necessities you have to take care of. Also, you have just one life to live, so as well make the best you can on a budget. One way to set the discipline is to allocate about 10-15% of your income flows to yourself. Here the focus should be on prioritizing. Put your needs first, since they are not negotiable. Once you are done with the needs, see how much of your wants and limited indulgences you can manage to address. Remember, the allocation of 10-15% here is the outer limit, so don’t exceed that limit.

Second Building Block – Get Adequate Insurance

Some insurances are optional but some are mandatory. Health coverage is mandatory since you don’t want to imperil your finances by paying medical bills. Start off with an adequate family floater health cover of Rs. 10-15 lakhs at the bare minimum. To save money on larger covers, go for a base plan plus a super top-up, so the deductible makes the plan economical. Do you really need life cover? If you have dependents, then life cover is mandatory for financial security for your family. In case you have a home loan or other liabilities, it makes sense to add term covers to cover such liabilities also. Insurance not only saves you the shock of sudden outflows but also protects the integrity of your assets and your Financial Fitness Plan.

Third Building Block – Set Aside an Emergency Fund

If you suddenly need cash to attend to a family emergency or need to travel or take care of an ailing relative; you do need an emergency fund to fall back upon. How much of an emergency fund to create? Ideally, don’t create an emergency fund that is more than 6-12 months of your expenses. Set this aside in a liquid mutual fund so that it continues to earn some returns even as the fund remains idle and liquid. However, this should be the base level of emergency fund to always maintain and this money cannot be used for any other purposes. More importantly, if you draw down your emergency fund for a family exigency, make it a point to immediately replenish it. You can also fall back on this fund if business flows go into a temporary downcycle.

Fourth Building Block – Time to Plan a Roof over Your Head

One of the core building blocks to long-term security, apart from insurance, is your own home. With your own home, you don’t worry about changing residence or wondering what to do if you cannot afford to pay the rent. The quality of life matters a lot and hence you cannot compromise on that. The own home ensures that you have an asset to fall back upon, even at a later stage in your life. For that, you need to start planning early so that you have the resources to pay the upfront payments and the monthly EMIs. Start this quest when you are still in your late twenties, so your EMIs are completed early. About 30-35% of your total income can be set aside for paying for the home.

Last Building Block – Take Calculating Risks in Investing

You cannot go too far by investing in gold and bank FDs. They offer portfolio hedge and asset security, at best. Women entrepreneurs must leverage the power of equities. As an entrepreneur, you perfectly know that returns and risk are correlated and you need to extend that business argument to your investment strategy too. As we said earlier, use the equity mutual funds route to get a diversified package and adopt a SIP approach. That is less risky, more disciplined, and more fruitful in the long run.

There is one more suggestion. In a career spent chasing your business goals, you often overlook your personal goals like travelling, social work, arts, etc. It is never too late to undertake such activities and see if you can set aside about 10% for financial freedom, so you can pursue such ideas in the future! That is a positive way to end the thought process.