Ram and Lakhan bumped into each other at their common friend’s marriage anniversary when Lakhan shared the good news of his son getting admission in one of the reputed schools of the city. He expressed his desire to send his son to the US for higher education, and the following conversation took place.

Lakhan: Ram! Delighted to see you here my friend. My son got through one of the most prestigious schools in the city and I plan to send him to the US for higher education.

Ram: That’s indeed a very good news Lakhan. Also, I am delighted to know that you want to send him to the US for higher education. So, do you have any plans to accumulate the desired corpus for it? You know education costs are pretty high, more so abroad. Along with tuition and admission fees, you need to take into account cost for books, accommodation, travelling, etc.

Lakhan: I know. Can you tell me some ways through which this can be achieved?

Ram: There are two ways to do it. Either you can borrow from financial institutions or invest in various instruments to build the desired corpus.

Lakhan: Okay. Which is the right option to choose?

Ram: Both these options are right. It depends on your choice and certain other parameters.

Lakhan: Can you kindly explain in detail?

Ram: Sure! Let’s start with borrowing. Today, many financial institutions readily offer student loans at competitive interest rates. Not only you readily get the desired sum, but can also avail tax benefits on the same. However, the onus of repaying the loan will be on your son. As soon as he starts earning, he needs to pay off the loan EMI.

Lakhan: Alright. As a father, I will not want to burden my son with a loan right at the start of his career. What about the second option, investment?

Ram: Through deft investments in various financial products, you can accumulate the desired corpus. For example, if you start a monthly SIP of even Rs. 5,000 in an equity mutual fund offering annualised returns of 12% now, assuming your son is ready for higher education 12 years down the line, you can amass a corpus above Rs. 16 lakhs. On top of this, you can also opt for fixed-return instruments such as bank fixed deposits and public provident fund to further build the reservoir for funds.

Lakhan: Alright. If I start today, I am sure I can amass a sizeable corpus. I can bridge the shortfall with the help of loan, if required.

Ram: Yes Lakhan! That would be the correct approach. The more you have in your kitty, the lesser will be the dependence on loans.

Lakhan: Thank you so much Ram for guiding me.

Ram: Welcome Lakhan and wish you all the very best.

Learn more about Mutual Funds for a good personal financial management.


DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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