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.
