Best Tool to Fund and Plan Your Foreign Education: Why Investing in Mutual Funds is Better Than Using Your Home as Collateral .Why & How to use Zenvest Wallet !!!
Planning to study abroad is a dream for many, but financing that dream can often be a significant hurdle. In this blog, we explore how investing in mutual funds and fixed income instruments can be a smarter choice compared to buying a home as collateral for funding your foreign education. We'll illustrate this with the story of Rahul, who aspired to study in the USA, and compare it with another student whose parents bought a home to secure a loan for his education.
Why Mutual Funds and Fixed Income Investments?
1. **Liquidity and Flexibility**: Mutual funds and fixed income investments offer greater liquidity compared to real estate. You can easily liquidate mutual funds to meet your financial needs without the lengthy process of selling a property.
2. **Lower Risk and Stress**: Using your home as collateral adds significant risk. If you default on the loan, you risk losing your home. In contrast, mutual funds provide a diversified investment, reducing the risk associated with a single asset.
3. **Potential for Higher Returns**: Mutual funds, particularly equity mutual funds, have the potential to offer higher returns over the long term compared to the appreciation of real estate values. This means more funds available for your education expenses.
4. **Tax Benefits**: Investments in certain mutual funds can offer tax benefits under Section 80C of the Income Tax Act. These benefits can help in reducing your overall tax liability.
5. **Simplicity and Accessibility**: Investing in mutual funds is straightforward and requires less initial capital compared to purchasing real estate. It’s accessible to a broader range of investors.
### The Story of Rahul: A Real-Life Example
Rahul dreamed of pursuing his master's degree in the USA. Instead of buying a home and using it as collateral for an education loan, Rahul’s parents started investing in mutual funds when he was in the 10th grade. Here’s how their decision played out:
#### Initial Investment and Growth
Rahul’s parents began a Systematic Investment Plan (SIP) in 2012, investing Rs. 30,000 per month in a diversified equity mutual fund. Over the next ten years, their investments grew at an average annual rate of 12%, thanks to the power of compounding.
By the time Rahul was ready to apply for his master's degree in 2022, their investment had grown significantly.
**Calculating the Corpus:**
Using a SIP calculator, the monthly investment of Rs. 30,000 for 10 years at an average annual return of 12% would result in a corpus of approximately Rs. 1 crore.
### Comparing Scenarios: Rahul vs. Another Student
Let's compare Rahul’s scenario with another student, Ajay, whose parents decided to buy a 1 BHK flat in Mumbai as collateral for his education loan.
#### Scenario 1: Rahul’s Mutual Fund Investments
- **Investment**: Rs. 30,000 per month in mutual funds.
- **Growth**: At an average annual rate of 12%, Rahul’s investments grew to a corpus of Rs. 1 crore by the time he needed funds for his education.
- **Liquidity**: Rahul could easily liquidate his mutual funds to cover his tuition fees and living expenses.
#### Scenario 2: Ajay’s Home as Collateral
- **Investment**: Ajay’s parents bought a 1 BHK flat worth Rs. 1 crore in Mumbai.
- **Rent**: The flat was rented out for Rs. 50,000 per month to help cover the loan EMIs.
- **Risk**: If Ajay defaulted on the loan, there was a risk of losing the property.
### The Unexpected Recession
Both Rahul and Ajay faced the challenge of not securing a job immediately after graduation due to a recession. Here’s how their financial situations differed:
#### Rahul’s Scenario
Despite the job market downturn, Rahul’s mutual fund investments provided a financial cushion. Additionally, Rahul could avail a loan against his mutual fund investments, ensuring he had enough funds to cover his living expenses without the stress of hefty EMIs.
#### Zenvest Pay-Only-Interest Product
Rahul also utilized the Zenvest Pay-Only-Profit product, which automatically covered his loan repayments using the profits generated from his mutual fund investments. This innovative product ensured that Rahul's principal investment remained intact while only the profits were used to service the loan. This made his situation relatively stress-free, allowing him to focus on his job search and studies without the burden of worrying about loan repayments.
#### Ajay’s Scenario
Ajay’s situation was more stressful. The rent from the flat helped cover some expenses, but the loan EMIs were a constant burden. The fear of potentially losing the property added to the stress, making it difficult for Ajay to focus on his job search.
### Intelligent Points and Probabilities
1. **Start Early**: The earlier you start investing, the more time your money has to grow. Compounding works best over long periods.
2. **Diversification**: Investing in a mix of equity and fixed income mutual funds can balance risk and returns, providing stability and growth potential.
3. **Emergency Fund**: Mutual fund investments can serve as an emergency fund, offering financial flexibility in unforeseen circumstances.
4. **Reduced Emotional Stress**: Not having your home at risk reduces emotional stress and allows you to focus on your studies and career.
### Advantages of Starting Early
- **Longer Investment Horizon**: Starting early allows for a longer investment horizon, leading to better compounding benefits.
- **Financial Discipline**: Regular investments instill financial discipline, helping in building a substantial corpus over time.
- **Risk Mitigation**: Early investments in diversified mutual funds mitigate the risk associated with single asset investments like real estate.
### Conclusion
Investing in mutual funds and fixed income instruments provides a flexible, less risky, and potentially more profitable way to fund your foreign education compared to using your home as collateral. Rahul's story exemplifies the advantages of starting early, using innovative financial products like Zenvest Pay-Only-Profit, and the peace of mind that comes with having a diversified investment portfolio. Make a smart financial choice today to ensure a stress-free educational journey tomorrow.
