Prajna Capital |
- A Financial Plan for Education
- Why is Contingency Fund so important?
- Inflation Indexed Bond to inflation proof your wealth
| A Financial Plan for Education Posted: 20 May 2013 03:48 AM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
Interest cost variation can also be a burden when planning for higher studies
With the cost of education in India and abroad having increased significantly over the past few years, providing finances for higher education for one's children, has become as important a financial goal as buying a house or planning for retirement. Hence, it requires proper and systematic financial planning. Lets look at the steps involved in financial planning for higher education.
Determine one's current financial situation: Gathering details about finances - that is, your current income, expenses, savings, debts and investments.
Estimate funds required:
Researching the course your child wants to pursue and keeping note of the funds required in future for meeting such higher education plans.
Identify alternative course of action: Life is uncertain, so you must always be ready with alternative courses of action. For example, choosing alternative educational institutions (in case your child fails to secure admission in the institution that is his or her first choice), curbing unnecessary expenses and so on will help. While deciding on an alternative course of action you need to assess the risk and time value of money. You also need to consider personal values and economic factors.
Create and implement your financial plan: You should create a financial plan that takes into account the future costs of education and not just the current costs -this will mean budgeting for inflation, interest cost variations, and so on. For example, if your child is three years old now and you are planning for his or her education after the age of 20 years, the cost of education could look something like this: ( See the table)
You should consider the investments already made, such as Public Provident Fund (PPF), mutual funds, and so on for this purpose, and deduct it from the total corpus required.
For example, if there is already an investment worth ~20 lakh in various instruments, then the total funds required (assuming foreign study in our example above) would be ~47 lakh, which can now be amassed over 17 years.
Now let us consider the various investment options:
1) You could be invested in a PPF as it gives you tax free fixed interest rate, principal security and income tax deduction.
2) Investing in a Systematic Investment Plan of a mutual fund, will give better returns than most instruments - but at higher risk of capital loss.
3) One can save by creating a trust for children. One needs to make an irrevocable transfer to the trust, where money cannot be claimed back by the donor. All investments are made through the trust and the income generated can only be used in accordance with the purpose of the trust. The income from the investments is not clubbed with the donor's income, but the trust needs to pay the tax.
4) It is not wise to invest directly in equities with the money set aside for your child's education, as there is a lot of uncertainty in the stock markets and you could end up losing the invested money. Debt instruments would be a wiser option.
5) In case of any shortage, your child could opt for an education loan, which he/she could repay after her graduation. However, consider the monthly repayments, collaterals and interest rates before taking up such loans.
Interest paid on these loans are also fully deductible from taxable income under Section 80E up to eight continuous years, starting from the year in which the interest is first paid.
Tax benefits
Another area to keep in mind while planning for child's education is the tax benefits one is eligible for.
A parent can claim a deduction of payment made for tuition fee to any university, college, school or any other educational institution. The deduction on payments made towards tuition fee can be claimed up to ~1 lakh together with deduction in respect of insurance, provident fund and pension. It can only be claimed in respect of two dependent children and for fees to an educational institution within India and for tuition fee only.
Review and revise financial plan:
A financial plan is personalised and unique. This plan should be monitored and revised regularly keeping personal goals in consideration to ensure proper outcomes.
Course Current Future pursued price (~) price (~)*
M.B.A. in India 8 lakh 21 lakh Medical in India 15 lakh 41 lakh Foreign study 25 lakh 67 lakh *After 17 years; assuming inflation at 6% Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
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| Why is Contingency Fund so important? Posted: 20 May 2013 02:28 AM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India) One of our Financial Planning client Mr. X (Name changed to protect privacy) working with an IT firm as a consultant was informed about the slowdown in IT industry. The consequences of slowdown in IT industry can be so dramatic that he might end up losing his job in next couple of months. God forbid, but if he really does lose his job, the financial goals which he dreams off such as cozy retired life, giving the best to children – be it education or even getting them married-off well amongst others; may all go haywire, but more concerning would be funding his day-to-day expenses to run a home including the EMI for a home loan.
Therefore, you see a need arises to primarily have a contingency fund to confront such a situation and embarrassments. Typically a contingency fund consists of 6 to 24 months of regular expenses. This includes all necessary expenses, but can exclude luxuries.
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
| ||||||||||||||||||||||||||||||||||||||||||||||
| Inflation Indexed Bond to inflation proof your wealth Posted: 19 May 2013 07:58 PM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
20% of each issue will be for retail investors
INFLATION-indexed bonds, proposed in this year's budget, will be launched on June 4. One of the objectives of the bonds is to provide an alternative financial instrument to wean household investors away from gold.
On that day sale of bonds worth between Rs 1,000 crore and Rs 2,000 crore will begin, to be followed by monthly sale of an equal amount on the last Tuesday of every month. The government will issue up to Rs 15,000 crore of such bonds this financial year.
This first series of the bonds will be issued till September, which will help determine the coupon rate for the bonds through auction. This will also help in benchmarking the bonds, according to a government statement.
Based on the experience from the first series, a second series exclusively for retail investors will be issued in October. The terms of issue for retail investors will be announced later.
Inflation-indexed bonds, also known as inflation linked bonds are debt instruments where the principal is usually indexed to inflation. They are designed to mitigate the inflation risk of an investment.
The bonds, to be issued by the Reserve Bank of India, will have 10-year maturity and index the principal to the wholesale price index with a four month lag.
The first series is open only to financial institutions so as to increase liquidity and for appropriate price discovery.
At present, retail participation in government securities is allowed only up to 5 per cent of an issue. In the case of inflation-indexed bonds this has been enhanced to 20 per cent to allow more retail participation.
Similar bonds did not work earlier in India because they were not fully indexed; nor were they marketed properly.
The statement said the bonds would have real coupon rate and nominal principal value adjusted against inflation. Periodic coupon payments will be made on the adjusted principal. Thus these bonds will provide inflation protection to both principal and coupon payment. At maturity the adjusted principal or the face value, whichever is higher, will be paid.
The coupon rate will be announced at the time of bonds issue.
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
| ||||||||||||||||||||||||||||||||||||||||||||||
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