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Sanjeev

Sanjeev Govila  | Answer  |Ask -

Financial Planner - Answered on Feb 10, 2024

Colonel Sanjeev Govila (retd) is the founder of Hum Fauji Initiatives, a financial planning company dedicated to the armed forces personnel and their families.
He has over 12 years of experience in financial planning and is a SEBI certified registered investment advisor; he is also accredited with AMFI and IRDA.... more
Amit Question by Amit on Feb 01, 2024Hindi
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Hi, I am investing 3.5 lacs every month in small and mid cap SIP for the last 2 years. My son will be going to study abroad. Should I fund his education from the MF or should I take a student loan and not touch the MF?

Ans: Deciding between using your mutual fund investments or a student loan for your son's abroad education requires more details like estimated education cost, living expenses, travel expenses, etc.

By considering your inputs, here are some pros and cons:-

Using portfolio for education:-

Pros:- As you have been investing in a mutual fund for the last 2 years, assume that your portfolio is generating potentially higher returns compared to loan interest rates, and in the long-term horizon (5-7 years) your portfolio becomes stabilized and the compounding helps to creates a good corpus for your future goals.

Cons:- If you withdraw the portfolio now, it will affect the compounding and the generated capital gain is taxable & it may also incur the exit load. In the short-term horizon, fluctuating markets might impact the value of the portfolio, potentially falling short of education costs.

Take Education Loan:-

Pros:- Lower interest rates are set off with the portfolio returns and it also provides suitable repayment options. It offers benefits like tax deductions.

Cons:- Add the financial burden on you, if you repay the loan and if your son repays the loan it becomes a debt for him after the completion of education but it also creates a sense of responsibility for your son and he experiences how to manage the finances.

We have explained you to the pros and cons of taking an education loan or using a portfolio for the same. To decide the same please calculate the estimated cost of education and also consider the portfolio return and education loan interest rate.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Omkeshwar

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Head, Rank MF - Answered on May 14, 2021

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I have a 12 year old child and want to invest 1 lac per year till 2026 for higher education. What is best MF to buy with this time frame and considering I would need the money in 2026?
Ans:
Fund Name Last price date Last price Total cost Current Value % of Total Total Return Return % pa Remarks
ICICI Pru US Bluechip Eqt Dir-G 2021-02-25 ₹ 42.05 ₹ 321,485.55 ₹ 356,905.85 18.6 ₹ 36,445.70 29.1 Bulk switch over from ICICI Multi asset fund in which I had SIP since 2017 of Rs 1,60,000/- on 28 Aug 20 & Rs 75,000 on 04 Sep 20. SIP @1000 per week from 28 Aug 20. Also switch in from ICICI gold Rs 50,000/- on 04 Dec 20
Motilal Oswal Nasdaq 100 FOF Dir-G 2021-02-25 ₹ 20.35 ₹ 84,346.33 ₹ 95,999.57 5 ₹ 11,653.24 32.3 Started with bulk investment of Rs 50,000/- on 22 Jul 20 & SIP @1250/- weekly since Aug 2020. I am also holding 100 sahres at buying average of 812/- in the ETF of this fund in my demat acct
Kotak Gold Dir-G 2021-02-25 ₹ 19.91 ₹ 75,996.44 ₹ 71,531.64 3.73 -₹ 4,464.81 -11.5 Started with bulk investment of Rs 50,000/- on 10 Jul 20 & SIP @3000 divided into tranches of 1000 on three days a month. Using this as Hedge for a longer period
Axis Bluechip Dir-G 2021-02-25 ₹ 43.60 ₹ 109,087.41 ₹ 143,205.60 7.46 ₹ 41,208.95 40.2 SIP @4000 per month in the fund since 2015 and encashed in 2109 but SIP continuing. SIP divided into three tranches of 1000, 2000 & 1000 on 01st, 10th & 20th of month respectively
SBI Focused Eqt Dir-G 2021-02-25 ₹ 204.70 ₹ 289,178.57 ₹ 377,724.67 19.69 ₹ 95,560.86 54.3 SIP @3000 per month in the fund since 2019 and. SIP revised to 5000 per month since Mar 2020 SIP divided into four tranches of Rs 1250/- on 1st, 8th, 15th & 22nd of every month. Done bulk investment by switch from SBI Blue Chip Direct growth of Rs 1,44,844 (accumlated thru SIP of Rs 4000/- per month from Jun 2017 to Jul 2020) on 13 Jul 20 & SBI MAgnum Gilt of Rs 50,000/- on 15 Sep 20
Kotak Emrgng Eqt Dir-G 2021-02-25 ₹ 62.45 ₹ 81,727.75 ₹ 95,071.60 4.96 ₹ 13,343.87 113.5 Started on 07 Dec 2020 by switching in 65000/- from Kotak Gilt. SIP @Rs 1000/- on 04th, 11th, 17th, 24th and 30th of the month
Parag Parikh Flexi Cap Dir-G 2021-02-25 ₹ 39.73 ₹ 29,999.50 ₹ 33,768.49 1.76 ₹ 3,768.99 75.8 Started on 29 Oct 2020 with initial investment of Rs 10,000 wef 29 Oct 2020 & SIP of Rs 5000/- divided into four tranches of Rs 1250/- on 10th, 15th, 20th & 25th of every month
DSP Eqt & Bond Dir-G 2021-02-25 ₹ 219.73 ₹ 14,000.00 ₹ 14,849.95 0.77 ₹ 849.95 54 Started in Dec 2020 with a SIP of Rs 4000/- divided into four tranches of Rs 1000/- each on 01st, 07th, 14th & 25th of every month
Mutual Funds     ₹ 1,005,821.55 ₹ 1,189,057.37 61.98 ₹ 198,366.75 40.1  

I have attached my protfolio of MFs. Though I have been investing in MFs since 2005, I have been redeeming the same many times like in 2010 for house and in 2014 & 2017 for personal trips abroad with my family.

The present state of my MFs is given above. My horizon is for long and hence my questions are as follows:

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Ramalingam

Ramalingam Kalirajan  |9255 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 25, 2024

Asked by Anonymous - Jul 17, 2024Hindi
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Thankyou for the indepth analysis and encouragement.. im planning to do my sip's in a manner of increasing investment by 15 percent every year .. is it better to do a sip on a mutual fund or begin a tailor-made education policy for an amount of 1 crore for my childs education, within the next 15 years sir? If yes, plz do mention the name of funds, i will do more research
Ans: You have a noble goal to secure your child's education. Increasing SIP investments by 15% annually is a wise approach.

Systematic Investment Plan (SIP)
SIPs in mutual funds can offer substantial growth over time.

Benefits of SIPs
Compounding: Regular investments compound over time. This leads to exponential growth.

Rupee Cost Averaging: Investing a fixed amount regularly reduces the impact of market volatility.

Flexibility: You can start with a small amount and increase it. This matches your plan to increase investments by 15% yearly.

Liquidity: Mutual funds offer easy liquidity. You can withdraw funds when needed for your child's education.

Professional Management: Actively managed funds have professional fund managers. They aim to outperform the market.

Disadvantages of SIPs
Market Risk: SIPs are subject to market risks. However, long-term investments typically smooth out these risks.
Education Policy
Education policies are often insurance products combined with investment.

Benefits of Education Policy
Guaranteed Returns: They offer guaranteed returns. This provides a sense of security.

Insurance Coverage: They often include insurance. This can be beneficial in case of unforeseen circumstances.

Disadvantages of Education Policy
Lower Returns: Returns are usually lower compared to mutual funds. This affects the overall growth of your investment.

Less Flexibility: These policies are less flexible. Early withdrawal may incur penalties.

High Costs: They come with higher costs and charges. This reduces the net returns.

Why SIPs are Better
Higher Returns: Mutual funds, especially equity funds, offer higher returns. This helps in achieving the 1 crore goal faster.

Flexibility and Liquidity: SIPs provide flexibility in investments. They also offer easy liquidity when needed.

Professional Management: Actively managed funds can outperform market indices. This leads to better growth.

Investing Through a Certified Financial Planner
Professional Guidance: A CFP can guide you to choose the best mutual funds. They provide valuable insights and manage your investments.

Regular Funds: Investing through a CFP offers advisory services. Direct funds lack this professional guidance.

Disadvantages of Direct Funds
Lack of Advice: Direct funds do not offer advisory services. This can lead to mismanagement of funds.

Higher Effort: Managing direct funds requires more effort and knowledge. It may not be suitable for everyone.

Avoid Index Funds
Disadvantages: Index funds simply mimic the market. They lack professional management.

Lower Returns: Actively managed funds often outperform index funds. Fund managers adjust for market conditions.

Final Insights
Increasing SIP investments by 15% annually is a wise decision. SIPs in mutual funds offer higher returns, flexibility, and professional management. Education policies, while secure, provide lower returns and less flexibility. Consult a Certified Financial Planner for personalized advice. They can help create a tailored plan to achieve your goal of 1 crore for your child's education.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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