Should I take a loan or use my FD for my son's education?

Sir for my son's education is it better to take loan or use my fd , i fall in 30 %IT slab. Pls adv

Ans: You are in the 30% tax slab. The choice between taking a loan or using your fixed deposit depends on multiple factors. Let’s evaluate both options from a financial and strategic perspective.

Benefits of Taking an Education Loan
Tax Benefits on Interest Paid

The interest paid on an education loan qualifies for a tax deduction under Section 80E. This benefit is available for up to eight years.

Since you fall in the 30% tax slab, this deduction can help reduce your taxable income.

Liquidity Retention

Keeping your fixed deposit intact ensures liquidity for emergencies and other financial goals.

Unexpected medical expenses or job loss can impact cash flow. A loan helps you maintain financial security.

Low-Interest Rates Compared to Other Loans

Education loans usually have lower interest rates than personal loans. Some banks also provide a moratorium period, during which repayment starts after course completion.

Credit Score Improvement

Timely repayment of the loan will improve your credit score. This can help in the future if you need to take another loan.

Disadvantages of Taking an Education Loan
Interest Outflow

Even though the tax benefit reduces the burden, you will still pay more than the actual loan amount due to interest.

If you can afford the expenses without affecting other goals, avoiding interest payments is better.

Loan Repayment Burden

If your son does not secure a high-paying job immediately, the repayment can become stressful.

You may have to step in to make EMI payments, affecting your retirement plans.

Benefits of Using Fixed Deposits
No Interest Outflow

By using your own funds, you avoid paying interest to the bank. The actual cost of education remains lower.

Peace of Mind

Without a loan, you won’t have to worry about monthly EMI payments. This ensures financial stability and mental peace.

Better Financial Freedom for Your Son

If you fund the education yourself, your son starts his career debt-free. This gives him more flexibility in career choices.

Disadvantages of Using Fixed Deposits
Loss of Liquidity

Using the fixed deposit will reduce your emergency funds. If another major expense arises, you may struggle to arrange funds quickly.

Impact on Other Financial Goals

If this fixed deposit was set aside for another financial goal, using it for education may delay that goal.

You need to evaluate whether this will affect your retirement or home purchase plans.

Tax on Fixed Deposit Interest

The interest earned on fixed deposits is fully taxable as per your slab. Since you are in the 30% slab, this reduces your net return.

Key Factors to Consider Before Deciding
Cash Flow Stability

If your monthly income and investments provide enough financial security, paying from the fixed deposit is a good option.

If not, an education loan can help manage cash flow better.

Alternative Investment Options

If your fixed deposit is earning lower returns than the loan interest rate, it makes sense to use it instead of taking a loan.

If your investments are growing at a higher rate than the loan interest, taking a loan is financially better.

Risk Tolerance

If you are comfortable managing debt and can benefit from the tax deduction, a loan can be a strategic decision.

If you prefer a risk-free approach, using your fixed deposit is the better choice.

Optimal Approach for You
Since you are in the 30% tax slab, an education loan can provide tax benefits.

However, if your fixed deposit is earning a lower return than the loan interest, using it can be financially smarter.

If liquidity is not a concern and your retirement plans remain unaffected, funding education yourself is a good choice.

A balanced approach is also possible. You can take a partial loan and use some of your fixed deposit. This way, you reduce the loan burden while keeping some liquidity.

Finally
Taking an education loan has tax benefits and keeps liquidity intact. However, it comes with interest costs and repayment obligations.

Using your fixed deposit saves interest but reduces liquidity and may impact other financial goals.

The decision depends on your financial stability, investment returns, and long-term goals.

A Certified Financial Planner can help structure your finances in the most tax-efficient way.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Dear financial guru. I am 46 now have a small buisness which I started with 2lac loan soon after my graduation , have 2 sons age 17 and 13 my wife is 40 year she is housewife. From the first day i started savings 1. Now have a corpus of 1cr in FD in bank with monthly intrest withdrawl of 60000 per month on 7% approx This is my retirement corpus 2. Have 1 flat of around 75 lac value which i have given on rent fetching me 20000 per month rent monthly. 3 . Have a investment in 2 plots with current value of around 4 cr and 80 lac 5 living in my ancestral home so I assume it with zero value of selling. 4. PPF ac having saving of around 25 lac matured I have extended it to another 5 years 5. Lic policy of around total 30 lac maturing in around 5 years. 6. Soviener gold bond of todays value for around 12 lac 6. Buisness income around 60000-90000 per month now as now my buissnesd is down due to recession. 7. No loans to repay . No monthly emi to pay. 8. I have taken family health insurance of 25 lac which I will increase to 50 lac in wen I am 50 years. So my current income is Fd intrest 60000 Rent 20000 Buisness income 60000-90000 Total 140000 -180000 Current monthly expenses including school fees 110000 Monthly saving after expense 50000 approx Now my aim 1. Need for my sons education , as my eldor son is 17years good in studies from next year I will be needing around1 lac to 1.50 lac monthly for 4 years as he will be doing btech from good collage maybe in india or abroad. 2 . Plans are approx same for younger son cuurently in 7th will be needing same amount after 4 years for further 5 years for his studies. So need 1-2 lac monthly from next year for around 8-10 years for studies of my both son. After that I will retire and need approx same amount for my entire life. Don’t like invest in share and mutual funds always want safe investment like fd. Pls guide me , I am thinking of selling one plot of 80 lac to manage funds for both sons education exp which I need for 8 -10 years. Second plot I plan to sell wen it’s value come to around 5-6 cr in another 3-4 years from now and will buy another commercial property which will fetching me rental of around 2.5 lac monthly if I rent it to a bank .or will put entire amount in fd with monthly pay out of around 7-8%. Pls guide me if am on right track because have limited knowledge . Thx

Ans: You have done very well. Starting with a small loan and building assets of crores is not easy. You have cared for your family, built savings, and kept your lifestyle under control. You have also kept insurance in place, which is very wise. Your focus now is children’s education and retirement. Both are achievable with a proper plan.

» Current Financial Snapshot
– Age: 46, wife 40, two sons aged 17 and 13.
– Assets: Rs. 1 crore in FD, one flat worth Rs. 75 lakh, two plots worth Rs. 4 crore and Rs. 80 lakh, Rs. 25 lakh in PPF, LIC of Rs. 30 lakh, Sovereign Gold Bonds Rs. 12 lakh.
– Income: Rs. 60,000 monthly from FD, Rs. 20,000 monthly rent, Rs. 60,000 to 90,000 business income.
– Expenses: Rs. 1.1 lakh monthly including school fees.
– Surplus: Around Rs. 50,000 monthly.
– Insurance: Family health cover Rs. 25 lakh (planned to increase to Rs. 50 lakh), LIC policies, no loans.

This shows a very strong and stable financial base.

» Children’s Education Goal
Your elder son needs Rs. 1 to 1.5 lakh monthly for 4 years from next year. Younger son will need the same after 4 years for 5 years. That means for around 9 years, you will need heavy cash flow for education. You want to sell the Rs. 80 lakh plot to manage this. This is a reasonable idea. Education is a priority. Funding it from a separate lump sum makes sense.

» Use of Rs. 80 Lakh Plot Sale
If you sell this plot, you can park the amount safely. Do not keep all in FD with monthly payout. Instead, stagger the money. Keep the first 2 to 3 years expenses in FD for liquidity. Keep the balance in safe debt options with gradual redemption. This way you earn better growth than normal FD. You will have predictable flow for both children’s studies. Selling this plot for education is a practical decision.

» Retirement Corpus Planning
Your retirement expenses will be around Rs. 1 to 1.5 lakh per month after children settle. You already have Rs. 1 crore in FD, Rs. 25 lakh in PPF, Rs. 12 lakh in gold, and rental income of Rs. 20,000. LIC maturity of Rs. 30 lakh will also add. In addition, you have a Rs. 4 crore plot. When you sell this in future, you expect Rs. 5 to 6 crore. This can give either large FD interest or rental from commercial property. That is the main driver for your retirement.

» FD and Interest Dependency
You like FD as your safe choice. FD gives fixed return and regular income. But it has two issues. First, interest is fully taxable. Second, it may not beat inflation over 20 to 30 years. You may feel comfortable today, but value of money reduces over time. With Rs. 1.5 lakh monthly need, you must ensure FD corpus is very large to support rising costs. Keep this in mind.

» Role of Gold and PPF
Gold is a hedge. You already have Rs. 12 lakh in Sovereign Gold Bonds. That is fine. Do not increase more. PPF of Rs. 25 lakh is safe and tax free. It adds to your retirement pool. Continue extension till 15 years if possible. It is a stable support.

» LIC Policies
Your LIC maturity of Rs. 30 lakh is not very large compared to your total wealth. LIC policies give safety but lower growth. After maturity, do not reinvest again in LIC. Shift the maturity proceeds to better instruments like FD or safe debt for income flow.

» Business Income Consideration
Your business is giving Rs. 60,000 to 90,000 monthly now. But you already sense pressure from recession. Do not depend on this as permanent. You must plan retirement income without including business income. If business gives profit, it will be extra cushion.

» Real Estate Considerations
You plan to sell the Rs. 4 crore plot later when it touches Rs. 5 to 6 crore. You also plan to buy a commercial property for rental of Rs. 2.5 lakh monthly. You must be cautious here. Real estate deals involve risks like tenant issues, delay in renting, maintenance, and liquidity. FD with 6 to 7% interest is safe but taxable. Rental income is also taxable and not always guaranteed. You should not depend only on this. Diversify your wealth so that you have multiple income sources, not just rent or FD.

» Health Insurance
You have Rs. 25 lakh cover, planning to increase to Rs. 50 lakh at 50 years. That is very important. Healthcare costs rise very fast. This step will protect your retirement corpus.

» Estate Planning
You live in ancestral home. You must write a Will clearly mentioning asset distribution. Mention how property and money should be divided between wife and sons. Do nomination in bank FDs, PPF, LIC, and bonds. This avoids future legal issues.

» Safe vs Growth Balance
You dislike equity and mutual funds. You want safety. But understand one point. FD interest may look enough today, but after 15 to 20 years, inflation will eat into your money. Rs. 1 lakh today may need Rs. 2 to 3 lakh then. FD will not grow to match this. Equity can beat inflation, but you are not comfortable. In such case, at least keep small exposure to growth-oriented safe funds managed by professionals. Otherwise, your wealth may look big but will reduce in value later.

» How to Manage Education and Retirement Together
– Sell Rs. 80 lakh plot. Park money in FD and safe debt for children’s fees.
– Keep Rs. 1 crore FD as retirement corpus. Do not touch it for education.
– LIC maturity of Rs. 30 lakh after 5 years can add to retirement fund.
– Continue PPF extension and treat it as retirement income booster.
– Sovereign Gold Bonds of Rs. 12 lakh can be kept till maturity for safety and small income.
– When sons complete studies, you will still have Rs. 4 crore plot to sell. That will be the main funding for higher retirement lifestyle.

» Risks to Watch
– Depending only on FD and real estate can reduce long-term growth.
– Tax on FD interest will reduce real income.
– Rental income may not always be steady.
– Inflation risk is real. Expenses may double in 10 to 12 years.
– Health costs may eat corpus if insurance is not high enough.

» Better Balance Suggestions
– Do not put all proceeds from Rs. 4 crore plot into commercial property. Diversify. Keep some in FD for sure. But also look at professional management funds through CFP. Active funds give better inflation protection. Avoid index funds as they only copy markets without risk control. Avoid direct funds as they need constant monitoring. Regular funds through CFP give discipline and review.
– Keep your emergency fund separate, at least Rs. 10 to 15 lakh in liquid form.
– Increase health cover to Rs. 50 lakh soon, not later.

» Finally
You have done great work till now. Your savings habit and asset creation are solid. Your plan to sell Rs. 80 lakh plot for children’s education is correct. For retirement, do not depend only on FD and rental. They are safe, but inflation and tax will hit. Use diversification for part of wealth. Keep core in FD if you like safety, but let a share grow in actively managed funds with CFP guidance. Write a Will and update nominations. Keep health cover high. With this balanced approach, you can educate both sons fully, retire peacefully, and live with dignity without fear of running out of money.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment