2019s Day 2021: Smart Gifting Ideas to Secure Your Mother 2019s Financial Future

Women, as mothers, entrepreneurs, wives, and daughters, never fail to surprise with their innate flair for multiple skills and ability to multitask. To be grateful for their selflessness, this Mother’s Day, gift your mother financial security for her future. The pandemic lockdown has upped the ante for going digital in every aspect of life, be it grocery shopping or investing. This Mother’s Day, digital investing is a unique gifting option for your mother.

Financial gift options for your mother:

• Mutual funds
• Corporate deposits
• Digital gold

Mutual Funds:

Fulfill your mother’s dream with mutual fund investments. Mutual funds offer diversification, liquidity and a professional who manages the fund, which means money can be invested in mutual funds even without having complete knowledge. There are different kinds of mutual funds - some that offer low risk and some that offer higher risk, and so it depends on the investor’s risk appetite and discretion to choose the fund.

One can consider setting up a Systematic Investment Plan (SIP) for their mother. You can invest as low as Rs 500. This will help mothers to save and earn returns, instil financial discipline as it requires periodic investing (say, every month), become tech savvy by viewing her portfolio on her phone, and enjoy the power of compounding. SIPs are also more rewarding in times of volatility than lumpsum investments, as they have the potential to earn higher returns due to the benefit of the rupee cost averaging approach.

One can start with a moderate risk to return balanced fund, or a safe debt fund if you do not want to take high risks by investing in direct equity funds.

Corporate Deposits:

Corporate deposit is an investment option wherein you have to put your money for a fixed period of time and earn a fixed rate of interest. This option is offered by NBFCs (Non-Banking Financial Companies) and other financial institutions. When compared with the fixed deposits investment, an option that is offered by banks, corporate deposits can fetch a higher rate of interest. While comparing the rates of corporate deposit interest to bank fixed deposits, you will see that there is a difference of 1-2 per cent between the two alternatives. This 1-2% differential can have a significant positive impact on your corpus in the long run. Corporate deposits are a good investment option for short to medium term financial goals.

Digital Gold

Amid the pandemic, gold is considered a safe haven. Digital gold is considered a good option as one does not have to shell out a lot of money. An investor can start investing with as low as Re 1. This gives an opportunity to invest in the budget while at the same time providing a hedge against a volatile equity market. Along with this, digital gold also has certain other benefits as it provides safety and security, easy liquidity, and quality assurance as most vendors guarantee 99.5 percent purity. Tracking error in prices of Gold MF and ETFs can also be avoided by digital gold products.

While there are several gifting options, one should also keep in mind it is of utmost importance to make sure one selects the right asset classes to invest in. This can be done while keeping in mind your mother’s age, risk appetite and goals.

Financial gift options that one should avoid:

• Bank FDs
• Investment in insurance policies
• Cryptocurrencies

Bank FDs

One should be aware that a fixed deposit offers a significant low rate of return as compared to 3-5 years ago. This rate of return does not even beat inflation which means that the inflation rate was 5.52 per cent in March 2021. Whereas, as seen in the above table, the rate of return on SBI Fixed deposit up to 3 years is 5.1 per cent. This suggests that returns are lower than inflation rate which means you are actually losing. So it is not advisable to invest in Bank FDs.

Money Back Insurance Policy

In a money back scheme, the person who is insured gets a percentage of sum at periodic intervals, instead of getting the lumpsum amount at the end of the term. It is an endowment plan. Traditional and Money Back Insurance plans were sold in the past as a savings product, but returns on these plans are a dismal 4-5 pe r cent, or even lower - which fail to beat inflation.  Hence it is not recommended to invest in the same.

For example: An investment of Rs 5000 was made every year in an endowment plan for 20 years which would have given a sum assured of Rs 1 lakh. The policy matured today would give Rs 2 lacs only. A modest IRR of 4.5 per cent approx. Money back policies are a disaster because the yields are very low, and the commitment period is high. These products are often mis-sold by projecting a 6-7 per cent return.

Cryptocurrency

While there is a big frenzy around crypto currencies where we have seen astronomical price increases in cryptos such as Bitcoin, Dogecoin in the last few months. Risks that come in with crypto currencies are apprehensive in nature. Cryptocurrencies are a big no-no for two main reasons:

• The regulatory framework around crypto currencies is unclear. We are not sure if the government of India will accept crypto currencies as a legal tender.
• They are highly volatile. If your mother is retired or close to retirement, asset allocation plays a key role. Investing in highly volatile and risky assets such as crypto should be avoided as the financial goals are more aligned to capital preservation vs capital appreciation.

The author is Co-Founder, Tarrakki

DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.