To give your children a bright career, you might have to send them abroad. There’s no greater joy you can give your child than sending them to study in the US, UK, Germany or France. But, this costs a lot of money. So you got to get the finances ready.
This is not an easy task. The cost of education is soaring in India, never mind abroad. With proper planning, you can easily send your children abroad for higher education. The trick is sound financial planning. Let’s see how you could send your child abroad for higher education, without burning your pocket.
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If you want to send your children abroad for higher education, you can’t focus just on the college and university fees. You must take into account all other expenses. The common expenses are tuition fees, travelling expenses and miscellaneous costs. You will never fall short of money if you know the approximate costs your child needs for higher education.
The next big step is deciding the source of funds. How would you fund child’s higher education? You could take an education loan, but most banks fund just 80-85% of the education course fees. You got to arrange the remaining 15-20% yourself.
You must invest based on risk profile. This is the ability and willingness to bear risk. A popular method of investing over the years has been fixed deposits. But, fixed deposits are offering lower returns as banks cut FD rates. Most banks offer 6.25% to 6.5% based on tenure. Fortunately, you have a long term horizon (This is 15 years or more) to accumulate the money, if you start investing when the child is very young. Consider PPF, NSC or post office saving schemes which offer much higher returns. PPF offers 7.9% as of August 2019, while 5 year NSC certificate offers 7.9%.
If you are willing to bear risk in investment, consider equity mutual funds. You can invest in a good equity mutual fund scheme through systematic investment plans or SIPs. SIP is not a mutual fund. It’s just a way of investing in mutual funds. Mutual funds entail risk, but could be quite safe over the long term especially 5 years or more.
Let’s calculate mutual fund SIP returns. Use IndianMoney Investment Calculator to calculate SIP returns. If you invest just Rs 10,000 a month in mutual funds through SIPs for 15 years, you get around Rs 50 Lakhs. (Assume annual returns of 12%). Do note that inflation could eat up returns.
Start investing as soon as possible. If you start investing Rs 10,000 in mutual funds through SIPs when your child is 3 years old, you could get Rs 50 Lakhs when your child is 18 years. You might not have sufficient funds if you start investing when the child is 8 or 10 years.
Review Investments: If you want to send children abroad for higher education, you just can’t fire and forget the investment. You will have to continuously monitor and review investments. Check the performance of mutual funds. If you are not happy with FD returns, shift to post office saving schemes or NSC.
Shift corpus to Less Risky Avenues: As you near the financial goal, its best to shift to less risky investments. If you are investing in mutual funds, shift to FDs when you are close to the goal. You may shift to debt mutual funds which offer decent returns and high liquidity.
Top banks offer education loan to study abroad. Your child must have a good academic background and secured admission in a reputed foreign university. Banks give preference to job-oriented courses.
You require filled application form, photographs, Identity and Residence Proof like PAN Card and Passport, Academic Certificates, Admission letter to foreign university, bank statements, income proof, collateral like flat or a house. For collateral like house or apartment you require property title deed, building approval plan and NOC for mortgage from builder or society.
SBI offers a maximum amount of Rs 30 Lakhs for an education loan. Loan to Value Ratio may be 85%. Loan repayment tenure ranges from 1-10 years. Axis Bank offers a maximum of Rs 20 Lakhs to cover tuition fees, accommodation and books. You can even secure the education loan to study abroad from NBFCs like Credila and Avanse. You would have to provide collateral to get education loan. NBFCs offer complete tuition fees to students.
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