Pooja Vastrakar, a fast bowler who can contribute fast runs down the middle-order, is one of those rare examples. She played for India in the recently concluded ICC Women’s T20 World Cup. In fact, in the inaugural auction of the Women’s Premier League (WPL), which happened in February, she was picked up by Mumbai Indians for ₹1.9 crore.

Vastrakar’s father Bandhan Ram told The Indian Express: “Mai chahta hun ki ye saare paise ka FD [fixed deposit] kar le (I want her to open an FD with all the money).”

Then, there is the case of Richa Ghosh, a hard-hitting wicketkeeper batsman. Ghosh, who was also a part of the Indian team in the T20 World Cup, is playing for the Royal Challengers Bangalore (RCB) in the WPL. RCB picked her up for ₹1.9 crore in the auction. Richa’s father, Manabendra, who lives in Siliguri in West Bengal, plans to “get her a flat in Kolkata so that she could stay there and practice”.

Other than Vastrakar and Ghosh, many Indian female cricketers have been picked up by different teams for a lot of money, perhaps the biggest pay-cheques that they have ever received. Hence, the chances are they would depend on their fathers to figure out what to do with the money.

This is but natural given that for almost all of them, becoming cricketers in a patriarchal society wouldn’t have been possible without the support, encouragement and enthusiasm of their fathers (This isn’t to suggest that their mothers weren’t encouraging enough). In fact, this is true about many successful Indian women professionals in other walks of life as well. They need to work much harder than men to rise through and shine. But when it comes to the management of their hard-earned money, they tend to depend on their “encouraging” fathers (and if not fathers, then husbands, brothers and boyfriends).

The question is, does this make sense? Are fathers who have supported their daughters to go out and play cricket or have encouraged them to get educated and take on well-paying jobs, competent enough to advise them on investing and management of money?

The answer is no. As Erik Angner writes in How economics can save the world: “Most people are functionally financially illiterate. And the situation is made even worse by the fact that they don’t know it.” They seem to be “dramatically overconfident” about their financial literacy, with men being more overconfident than women. The overconfidence increases with age. Given this, on the whole, fathers may not be the best people going around when it comes to advising their daughters on how to manage money. (Of course, there are always exceptions).

So, what’s the way out? Should women look at taking advice from the financial services industry? There are scores of insurance agents, mutual fund agents, wealth managers at banks, independent investment advisors and chartered accountants out there, who seemingly specialize in the management of money.

There are two problems here. First, given the sheer number of people interested in managing your money, how do you choose one? Second, there is the agency problem. Christopher Blattman, in his book Why we fight, defines an agency problem as follows: “It arises whenever one party (called the principal) is trying to get another party (the agent) to act on their behalf. The principal worries that the agent will pursue their own agenda. When you hire a lawyer, a financial adviser, or a real estate agent, for instance, you might worry they’ll do things to maximize their fees rather than get you the best deal.”

When it comes to investing, the newbies are the easiest to con. As Angner writes: “There are people out there who want your money as badly as you do. There are scams, of course. There are also perfectly legal ways to get you to part with your money. We should not be surprised that banks and other financial institutions are doing what they can to make you fork it over.”

In this scenario, the best option is to get involved with managing your money and start with first learning the basics. This might seem intimidating but that is primarily because the ‘men’ (yes, largely men) who run the financial services industry like to throw jargon while speaking, in order to project the whole thing as being a lot more complicated than it actually is.

So, what are the points that a successful female professional needs to keep in mind while managing her hard-earned money? Here’s a list.

Inflation

Money has a certain purchasing power at a given point of time. Over the years, as prices go up, this purchasing power comes down. The rate of price rise is referred to as inflation. Hence, our investments which lead to savings, need to generate a rate of return which is higher than inflation. Given this, Bandhan Ram Vastrakar’s investment strategy of getting his daughter to invest all the money into FDs, may not be the best way to go about things.

Typically, the interest earned on FDs tends to be lower than the rate of inflation. The interest rate on FDs currently ranges from 6-8%. At 6-8% interest, the post-tax return on investing in an FD just about matches the rate of retail inflation or is lower than it, depending on which FD one invests in.

So, it is important to take on some risk while investing. This risk can be taken on by investing in stocks (directly or indirectly through mutual funds). This creates the problem of too much choice, given that there are many stocks and many equity mutual funds which invest in stocks, going around. How does one choose?

The simplest way is to take this choice out of the equation and invest in an index mutual fund. An index mutual fund tries to mirror a broader stock market index by investing in stocks that constitute indices like the Sensex or the Nifty. Hence, as a result, the returns on such funds are closer to the overall return of the broader market. As one’s learning goes up, one can look at taking on greater risk by investing in actively managed equity mutual funds and even stocks for that matter.

Return of Capital

So, should one not invest in FDs? The return of capital (that is the amount invested) is as important as return on capital. Given this, some money, should always be invested in FDs, in order to be ready for a financial emergency.

Further, the chances are that the returns on investing in stocks, directly or indirectly, over a longish period of time of a decade or more, will end up giving you a higher rate of return than FDs. But in the short-term, the FDs might do better. So, if you need some money in a period of three years from now, it might be much better to invest in an FD.

The split between how much to invest in an FD and how much in stocks or mutual funds, is a very individual decision. It depends on your ability to take on the risk, and that, in turn, depends on your profession, education and the family wealth background.

Now, let’s consider the Vastrakars. The auction amount is a large amount. In case the family is not ready to take on much risk, the whole amount can be invested in an FD and every month, the interest earned can be used to do an SIP (systematic investment plan) on an index mutual fund. This way, their initial investment (in the FD) is protected. At the same time, they get some exposure to an asset where their chances of earning a higher return are better over the long-term (through the SIP). So, return of capital and return on capital are both taken care of.

Diversification

Richa Ghosh’s father, Manabendra, plans to get her a flat in Kolkata. This goes against the most important principle of investing, which is diversification, or as the old cliché goes, don’t put all your eggs in one basket. Richa is a young cricketer who is still a teenager. Cricket is a very risky profession and given this, blocking all the money in one investment at the very beginning of her career, isn’t the right way to go about things.

The nuance here is that Ghosh senior wants to buy the flat so that his daughter can stay in Kolkata and practice there. This is a good idea, three to four years down the line, once Richa has played a few more years of WPL, and has some savings to fall back upon. Meanwhile, Kolkata being the sports mad city that it is, it shouldn’t be very difficult for the Ghoshs to find a landlord willing to rent.

In fact, this works for female professionals in general as well. They shouldn’t get pressured into locking away their savings in one large investment.

Beware of uncles

There are a whole host of old uncles, all across the country, who have made a living, and continue to make a living, by selling investment-oriented insurance policies. These uncles tend to be very friendly with heads of families in their locality. They can scent money coming in and tend to land up quickly to get sons and daughters, who may have just started working, to invest in investment-oriented insurance policies. Beware! Stay away from investment-oriented insurance policies. You might be better off investing in FDs and post office schemes.

Men seek excitement

Many men seek excitement while investing and this isn’t good. Angner makes this point in his book by referring to a research paper titled Boys Will Be Boys authored by Brad Barber and Terrance Odean. Angner writes: “Men tend to be more overconfident than women … [and] trade more: trying to time short-term fluctuations in stock prices in order to buy low and sell high. Comparing data from 35,000 households, they found that men trade 45 per cent more than women. And because trading is bad for your wealth, the men did a lot worse than the women.”

Trading provides excitement to some men and this is something that could be seen over the last few years as men bought and sold bitcoin and other cryptos with a vengeance. As a November 2022 working paper published by the Bank for International Settlements points out with regard to the demographic profile of people investing in bitcoin: “40% of users are men under 35, commonly identified as the most “risk-seeking” segment of the population.” As is well known, this did not end well for many men. This is another reason why women shouldn’t let the men in their family manage their hard-earned money.

Goals and independence

In the experience of this writer, many women like to save towards a goal. They want to save for their next holiday, the next home, the next car or run an SIP with a gold jeweller, while they should be saving for the sake of saving. There is a reason for this.

As Morgan Housel writes in The psychology of money: “Only saving for a specific goal makes sense in a predictable world. But ours isn’t. Saving is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment.”

As he further writes: “Savings without a spending goal gives you options and flexibility, the ability to wait and the opportunity to pounce. It gives you time to think. It lets you change course on your own terms.”

To conclude, women need to take control of their money. Depending on their fathers—and other men in their family—is not the best way to go about it. Simply because most men don’t know how to go about doing this properly, and they don’t know that they don’t know. That’s scary.

Ultimately, in order to live a life on your own terms, you need money in the bank, an understanding of how it works and full-control over it.

Vivek Kaul is the author of Bad Money.