Raksha Bandhan 2024: Gift your sister financial literacy; some tips for you

Planning to hand over a few crisp notes into your sister's hand this Raksha Bandhan? But how about giving her something that lasts longer—something that empowers her financially? Imagine helping her achieve financial independence or teaching her the basics of managing money. Whether it’s an investment in her future or contributing to her financial goals, a financial gift could be the most meaningful present you give this year.

According to a report by DBS Bank India-CRISIL, "47% of women seek advice and information from family members when making financial decisions. On the other hand, 27% of women turn to financial advisors or chartered accountants for advice."

So, this Raksha Bandhan, why not make it special and educational? Empower your sister so that women no longer lag behind men in financial literacy.

How can you empower your sister financially?

Gift her financial literacy

This Raksha Bandhan, consider gifting your sister financial literacy. But how can you do this? Start with the basics of budgeting and saving.

"You can begin by creating an overall budget for her, which includes keeping track of all her income and spending. Introduce her to the 50/30/20 rule," says Siddharth Maurya, founder & managing director of Vibhavangal Anukulakara Pvt Ltd.

The 50/30/20 rule suggests:

50% for needs: Essentials like groceries, rent, and utility bills.

30% for wants: Things like dining out, hobbies, or shopping for fun.

20% for savings and debt repayment: Building savings or paying off debts.

"Show her how to use budgeting apps or spreadsheets to make it easier to track. After that, help her set up automatic transfers to high-yield savings accounts for emergency funds and future goals," Maurya explains.

You can also teach her about slashing unwanted expenses, increasing her income, and the power of compound interest. This knowledge will give her the confidence to manage her money, reduce financial stress, and achieve her financial goals faster.

Invest in property

If you have money, consider gifting your sister an investment in property this Raksha Bandhan. A carefully chosen plot or apartment can be a stepping stone toward her financial independence.

"Real estate, 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 at Goel Ganga Developments.

"Gifting property means she’ll not only have a physical asset but also the potential for passive income through rentals or appreciation. It’s a safety net for her financial security and a tangible asset that could grow over time, benefiting future generations as well," he adds.

Remember, location is key. Look for areas with upcoming infrastructure or growing commercial hubs. Consult a real estate expert to make an informed decision.

Set up a diversified investment portfolio

Another way to make this Raksha Bandhan special is by helping your sister set up a diversified investment portfolio. This could include a mix of stocks, bonds, mutual funds, and even alternative investments like REITs or commodities.

"A well-balanced portfolio will provide growth with stability, which is how you’ll help her build wealth," says Aman Gupta, Director of RPS Group.

"Understand your sister’s financial goals and risk tolerance. 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," Gupta explains.

This gift won’t just be financially useful; it will also teach her valuable lessons about managing money and the importance of diversification—never keeping all the eggs in one basket.

Other suggestions:

Open a fixed deposit or recurring deposit account:

Encourage her to initiate a recurring or fixed deposit (RD or FD) account. You can transfer the amount to her account monthly before it is subtracted from her savings account and placed in her recurring deposit account. Both fixed deposits and recurring deposits will earn her a higher interest rate compared to a regular savings account. Both fixed deposits and recurring deposits are suitable for short-term goals.

Systematic Withdrawal Plans (SWP):

Systematic Withdrawal Plans (SWP) will allow your sister to withdraw a fixed or variable amount regularly, be it monthly, quarterly, or annually. "The key benefit of a SWP is that it provides a steady income," says Aditya Kuchibhotla, Chartered Accountant and Executive & Business Coach. This is particularly useful for those needing 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 a mutual fund scheme: Select the mutual fund scheme you want to invest in and open an investment account with the fund house.

b. Select investment mode: Decide whether to invest via SIP (Systematic Investment Plan) or a lump sum.

c. Set up the SWP: Instruct the fund house to withdraw a fixed amount of money from your fund at regular intervals, such as monthly, quarterly, or annually, and transfer it to your bank account.

d. Withdrawal process: On the specified withdrawal date, the fund house will sell enough of your mutual fund units to meet the withdrawal amount and credit it to your bank account.

e. Ongoing process: This process continues for the set period or until you cancel the SWP.

f. Remaining balance: The remaining balance in your fund continues to earn returns based on the performance of the underlying assets. However, your account balance will decrease over time as you keep withdrawing money through the SWP.

Retirement fund:

A retirement fund is a practical gift that helps your sister build financial security for her later years. By setting up a retirement account and contributing regularly, you enable her to save for a comfortable future. Contributions to retirement mutual funds are tax-exempt up to Rs 1.5 lakh under Section 80CCC.

There are two main ways to invest in retirement funds:

Lump sum investment: Ideal for those with a healthy cash reserve, this method involves investing a substantial amount at once.

Systematic Investment Plan (SIP): This involves investing a fixed sum monthly, making it easier to manage and grow investments over time.

Real Estate Investment Trusts (REITs):

REITs are a unique gift idea, allowing your sister to invest in real estate without direct ownership. LC Mittal, Director at Motia Group, recommends REITs as they offer opportunities for rental income and capital appreciation from properties such as commercial buildings and healthcare facilities.

Advantages of REITs

Higher returns:

REITs offer good long-term returns, helping investors grow their wealth steadily over the years.

Stable income stream:

REITs must distribute at least 90% of their taxable income as dividends, providing a regular and attractive income stream, ideal for retirees seeking passive income.

Diversification and accessibility:

REITs allow access to a diversified real estate portfolio, including residential, commercial, and industrial properties, without requiring significant upfront investment. This diversification reduces risks associated with a single property or market.

Disadvantages of REITs

Market sensitivity:

REITs are affected by market fluctuations. Economic downturns or interest rate changes can impact their value, requiring a long-term investment outlook to manage volatility.

Interest rate sensitivity:

Changes in interest rates, influenced by the Reserve Bank of India's (RBI) repo rate adjustments, directly affect REIT returns. Higher interest rates usually lower the value of REIT stocks.

Tax implications:

Dividend income from REITs is taxed at the investor’s ordinary income tax rate, which can be higher than the capital gains tax rate. Not all REIT dividends qualify for preferred tax treatments. Consulting a tax professional is recommended to understand the tax implications.

Gold investment

While gold is a valued investment, managing its purity and liquidity can be challenging. Introduce your sister to paper gold, such as sovereign gold bonds or digital gold funds. These options provide the benefits of gold investment without the hassle of storage and security.

Medical insurance

Healthcare costs can be a significant burden as we age. Gifting your sister a health insurance policy can alleviate this financial strain. This gift ensures she has access to quality healthcare without worrying about the costs, providing peace of mind and financial security.

Empower her entrepreneurial spirit

"If your sister dreams of starting a micro-business from home, consider providing the necessary funds to help her realise her aspirations," suggests Vinnaayak Mehta, Founder of The Infinity Group. Whether it’s a plant nursery, cooking tutorials, art classes, or a mini bakery, support her endeavours by offering financial help and assistance in setting up her venture.