Mutual funds vs Kitty Party funds: What women should know!
It is common knowledge that it was considered okay to keep women excluded from the banking and financial services system until a few years ago. Their participation in the gamut of finances was only limited to maintaining a stringent household budget and a wad of cash that they may have saved at the end of the month from whatever amount they would be entitled to receive from their husbands for household expenses. While a multitude of positive changes have ushered in the last couple of years, women still have a long way to go in terms of having sufficient financial know-how and access to financial services.
The popularity of the kitty party culture in India also has its roots in the patriarchal system that primarily entrusted the male members in the family with the responsibility of managing money and financial assets. The kitty party afforded women some level of economic flexibility and a semblance of control over money.
The kitty party can be best described as a rotating savings association, wherein the members contribute a certain amount into the kitty at every meeting. The collections usually happen on a monthly basis and whoever is the host of the kitty party in a given month gets the collected sum of money. In one round, each member of the kitty has to step into the shoes of a hostess and the round is completed when all members have had the chance to do so. The modus operandi is very similar to that of chit funds wherein members of a chit fund pay an amount to the chit fund company at specific intervals for a fixed period of time. The corpus is then put into a common fund which is then given to one person selected in a lucky draw.
The genesis of the kitty party culture dates back to the post-independence era. The ritual has been stereotyped and subjected to a lot of bad rap for being a hotbed of gossip for bored housewives. However many women will concur that kitty parties served as monetary lifelines for many women with the added advantage of providing safe spaces for them to befriend other women and momentarily escape the drudgery of their household and familial responsibilities. The money they received from the kitty comes in handy either for self-pampering and the occasional indulgence or they would be used to bolster their existing body of savings.
While the humble kitty party has been given a face-lift over the years and they have evolved from being simple afternoon soirees with home-cooked food to lavish and glamorous affairs, many women still continue to rely on their kitty groups for their financial needs. Understanding of the concepts of investing and financial planning and the knowledge about different types of financial products continues to remain elusive, especially among middle-aged and older women. Also, what with the element of fun and recreation deeply intertwined with this financial exercise, reluctance to switch to formal financial products and services is prevalent.
Taniya Sinha, aged 48 (name changed) says, “I have always been a housewife and the kitty party system seemed sufficient to take care of whatever financial requirements I had. It was only after my daughter, who started working last year, insisted that I start investing money in mutual funds, did I realise that kitties are okay for the purpose of building valuable friendships with other women and for having fun but they cannot double up as investment products. It took me while to develop the confidence to dabble with investments and my daughter helped me a lot. I have been able to create a much larger corpus with my mutual fund investments in one year than I could build with my kitty money in 2-3 years.”
Given the lack of financial inclusion of women, kitty contributions are almost always made in cash. This means that unless the cash is deposited in a bank and then invested somewhere, the corpus cannot grow. If the kitty has a large number of members, it would mean that the host would have to manage a large amount of cash which could be a problem. Not to mention, that rarely does that cash end up in an investment or a savings account because of women being far behind than men in terms of financial inclusion. It results in a wasted investment opportunity and unlike an investment where the money is safely locked away where you cannot spend it when impulses get too strong, cash lying around in the house gets spent easily.
Deepak Chhabria, CEO of Axiom Financial Services advises against the practice of relying too much on kitty party circles for financial needs. “Mutual funds are well-regulated, available to everyone and there is a high degree of transparency of the underlying portfolio. On the other hand, kitty and chit funds are not regulated and depend entirely on whether you can trust the members of such funds – for instance if the kitty group is disbanded before each member gets a turn, how do you figure out whether you should be paid back any money? Also, with mutual funds you are under no compulsion to withdraw the investment whereas with kitty funds, you may have to withdraw the stash that you may have acquired in a kitty for your subsequent kitty contributions.”
A better way to put money to use is to deposit the kitty cash in a bank account and use that for SIPs in mutual fund investments in equal installments. Sinha narrates, “It’s not that I have stopped being a part of kitty groups but I don’t rely on it solely for maintaining liquidity. I have been regularly investing my savings in mutual funds through SIPs and even when it is my turn to host a kitty party, I keep only a small portion of it in cash with me and the rest is also channelized into mutual funds. There is no concern about liquidity either because I can easily withdraw the money when I need it and the returns have been enough to make my individual financial situation significantly better than what it used to be previously.”
While mutual funds can never be a substitute for the safe spaces provided by kitty parties for them to express themselves, to feel a sense of kinship with other women and to forget their duties and exert their social autonomy, they can definitely make the financial rewards earned through kitty parties more meaningful and valuable.
• Mutual funds are well-regulated, available to everyone and there is a high degree of transparency of the underlying portfolio. On the other hand, kitty and chit funds are not regulated and depend entirely on whether you can trust the members of such funds.
• If you are new to the world of mutual fund investments, it would be wise to seek the help of financial experts before choosing funds to invest in.
• You can also set up a separate bank account where you can park the proceeds from your kitty party instead of dumping it in your checking account so that you don’t end up wasting a chunk of that capital.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.