Sip vs education loan: Every parent wants their child to study from the best college and make a strong career. But this is the biggest question among the rising education cost- whether to invest in advance or take education loan if needed? While Mutual Fund options such as SIPs can give good returns in long periods, education loan fulfills immediate needs but increases the responsibility of repaying later.
In such a situation, the correct decision depends on your planning, the ability to take risk and time Horizon. In this story, we understand which situation in both these options can prove to be better.
Why is investment necessary for education?
There is a lot of pressure on parents about children’s education. Inflation in education increases by about 8 to 10 percent every year. In such a situation, it is very important to invest for the higher education of children. So that the pressure of big expenditure on you does not increase and you do not have to compromise with other things. A good corpus can be prepared by mixing equity mutual funds, PPF and Sukanya Samriddhi Yojana SSY (if you have a daughter).
Is investment in mutual funds correct?
Children’s higher education requirements come when they are 18 (for graduation) or 21 (for masters) years. That is, you have a long time, which is considered suitable for investment in mutual funds. Therefore, capital can be made for education by investing in mutual funds of different categories.
What should be the ideal date-equity ratio?
According to experts, if your investment time is 7 years or more, the ratio of equity should be 70% and 30% of the date. But if the time is short, it would be prudent to invest 50-50 percent in both equity and date. This depends on your ability to take risks overall.
When education loan is received, why invest in mutual funds?
Even if the education loan is easily found, it is considered prudent to invest in mutual funds as it gives a strong financial backup. If the child cannot get a high-ping job or economic situation favorable for some reason, then it can be challenging to repay the loan.
In such a situation, an investment corpus already prepared helps in dealing with that situation. Also, if the expenses of studies increase more, then with the amount of investment, you can easily work with a little education loan. By taking a loan, the child gets a financial discipline and he uses it responsibly, understanding the price of his studies.
How much should we invest for education?
It is necessary to keep the inflation rate in mind for years up to the target. For example, if the target is 10 years away and inflation is increasing by 5% annually, then the total need should be calculated by adding 5% every year. If you look at this formula, then the studies that will be done for Rs 5 lakh today will cost about 8.14 lakh rupees after 10 years.
If you want to teach your child in another country, then keep the inflation rate there in mind. Apart from mutual funds, you can also invest in the currency (currency) of the country, where you are planning to study, so that your plan does not deteriorate due to currency fluctuations.
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