Few can bust the myth that women and money don’t go hand in hand, as good as Arundhati Bhattacharya has. She heads India’s largest bank, the State Bank of India, and is the first woman to do so in its 210-year history. She spoke to Mint about financial independence and money management. According to Bhattacharya, financial independence for a woman is paramount. When it comes to investments, she believes in a diversified portfolio with a mix of deposits, small savings, mutual funds, and exchange-traded funds (ETFs). Edited excerpts from the interview:
How important is it for women to be financially independent?
First and foremost, if you don’t have financial independence, then you don’t have a place in the household to take part in difficult and important decisions.
If you are dependent, you may not be considered to be a person who can contribute to decisions that can make a big difference. If a woman is financially independent, she can definitely make a bigger contribution in making big decisions and contribute much more. If a woman is financially independent, she can pursue her interests too.
It is only after you are able to stand on your own feet, or have the confidence that you can stand on your own feet, should you look at doing things such as marriage or setting up a family.
It is assumed that many women have a fear of mathematics; many women say they find it difficult to take financial decisions. Is this a myth or reality?
The perception may be because women in India have not been in formal banking or learning systems for a very long time. I have met a lot of women who are good at math.
First, the stereotype that women are not good at math is absolutely misleading and we need to change it.
Second, it is not just women but even men don’t know how to handle their money. The reason is that from childhood, since school level, we don’t teach children about finances. Finance is something that people learn by chance and not by design. This is one thing we have been propagating—you need to tell people how to handle their finances from a much earlier age.
Today, I see these youngsters. When they get a job— whether it is a man or a woman—the first month they will buy a high-end mobile. If it is a man, the next month he buy the best of motorcycles. Then the third month he doesn’t know what to do with his money. It is not something that ails women alone. It ails men as well.
The solution lies in giving people financial training from early childhood. Children should be taught in school that you should have all kinds of asset classes in your portfolio. They should be taught what those asset classes are, and their advantages and disadvantages.
We should get people, even youngsters, to prepare paper portfolios—which are not actual but on paper only—and evaluate them over a period of time to see whether they are getting returns or not. These kinds of things can be done even at school level, to give people a better understanding and a comfort level in dealing with finances. However, in the interim, they don’t have the comfort level.
What is the process of planning your finances and taking financial decisions?
We, at SBI, have started a wealth management service aimed at the mass affluent. It is not aimed at the ultra-high net worth individuals. Currently we have rolled out wealth management services in just four centres. This year we are expecting to roll out across the country. When it comes to money management, you need to first set goals. What are your financial goals? It could be child’s education, vacations every quarter, a nest egg for retirement or buying a house. Once you set your goals, you need to determine your risk appetite—how much risk you can take.
If I am young and I have a lot of productive years ahead of me, I can take more risks. If I am old and about to retire, I can’t take risks. If I am in the middle, I can take a balanced view. Then, depending on your profile, you can decide what are the investment destinations for you.
When you invest money, remember that while you are looking for good returns, you must also have some liquidity. In case of sudden problems, you should be able to have some money in hand. You should not put all eggs in one basket, even though that basket may be doing very well now. You need to have a diversified portfolio. And last but not the least, you must be able to cut your coat as per your cloth—don’t spend beyond your means.
If you do these few things, then going forward, you will be in a much better position than you are in today. I would say the earlier you start investing and saving, the better it is because the power of compounding is huge. If you start your savings at the age 25, instead of 35, the difference is huge. You will not be able to bridge that gap even if you save double after 35. Start saving the day you start earning.
You spoke about a diversified financial portfolio. Which are the instruments that you suggest for investments?
First, you should have a bank deposit because it offers liquidity. Next, you should definitely have a Public Provident Fund account because the tax benefits and the returns you get on it are very good. You should begin with these as these are the two primary product. After that you should look at putting some money into mutual funds.
I would say you should put some money into equities. However, if you are not comfortable with handling money in the stock market directly, you should put money in mutual funds. You can invest in all kinds of mutual funds. There are mutual funds that are equity-oriented, debt-oriented and balanced ones. Depending on your risk appetite you should look at all of them. You should also look at having a little gold may, be as ETFs and also some real estate. Gold is supposed to be inflation indexed. If inflation goes up or down, its value can go up and down accordingly, which is also important.
You should have money in all of these areas. And if you do that, then more or less you can expect your wealth to grow and not come down over a period of time. Remember that inflation actually brings your purchasing power down. Unless you are investing and ensuring returns, you will have difficulties.
Personally, do you get time to manage your money?
I do have someone who helps me. We have a wealth management platform and I am on-board there. I have a manager who looks at my portfolio and keeps telling me what to do. Personally, I don’t have the time to see what is happening—when I need to renew something and when I need to shift from one mutual fund to another.
What are the must-have financial products for women with low income?
People who are on the margins need to start saving. You can leverage saving for getting loans, for any purpose, at reasonable rates.
If you don’t have savings then banks don’t have any history. If you don’t have any history, then it is difficult to borrow. The fact that money is getting collected and then going out will create a history of how much the person is actually earning and will enable the person to access all banking channels.
Next, buy insurance. If the breadwinner of a family dies, you must have something to fall back on. Similarly, if there is a health crisis, then all your money gets drained and you will not even be able to get good treatment unless you have good health insurance.
Hence, the next thing after savings is to get some amount of insurance. Insurance is not very costly. Once you are comfortable with these two things, then you should start looking at investments and there again I would say, first thing is to buy some place to stay.
While they do that, they can definitely look at small-value investments in mutual funds. Here you are not directly dealing with the stock market, but mutual funds will try to give you the advantages of the stock market. You can do systematic investment plans and set aside whatever you have—say, Rs500 or Rs1,000. But you need to look how these schemes are doing over time and, if necessary, change them at particular intervals.