Financial Cocktail Samosas: Bitesized Money Morsels For You, 04/01/2023

Factors To Consider Before Applying for an Education Loan

Are you planning an expensive education for your child within India or abroad? As the cost of education is rising at a fast rate day by day, education loans have become one of the most viable options to finance higher education these days for most households.

The following factors should be considered while applying for an education loan –

  • Loan Amount: The loan amount should be big enough to cover the cost of tuition fees, books and stationary as well as major living expenses of the child after counting out the amount that you would contribute yourself. Do not forget the cost of renting a place to stay with your child.
  • Rate of interest and Repayment period: The interest rate of an education loan currently ranges between 8% and 12% p.a., depending on the type of course, institution, past academic performance, the credit score of the borrower, employability of the child envisaged after the course and the security offered by you for the loan. You should evaluate the rate of interest and conditions offered by different banks, time of repayment and part-or-full pre-payment allowed and then choose the option that is best suited to you.
  • Tie-up between college and banks/NBFC: Most of educational institutes have a tie-up with one or more banks or NBFCs for providing loans.  Such loans have lesser paperwork, get disbursed faster and are typically cheaper. Look for such loans.
  • Taxation Benefit: Under Income Tax Section 80E of the Income Tax Act, there is taxation benefits on the interest component of education loan taken for self, children, and spouse without any upper limit. As the deduction is available for only 8 years from the day of the commencement of EMI, you should try to repay the loan within this tenure to maximize tax benefits.
  • Estimate the future earnings to calculate the EMIs: You should look up the past placements records and analyze your average payouts to estimate your future earnings. This will help you in determining the loan EMIs and tenure.

Undoubtedly, education loans are extremely useful but they can also be a significant burden if not managed properly.

(Contributed by Yogesh Gola, Financial Planner, Team Vikrant, Hum Fauji Initiatives)

REITs vs. Real Estate Mutual Funds: What’s the Difference?

REITs and real estate mutual funds are both designed for investors who want to diversify into the real estate market without investing directly in a physical property.

REITs – A REIT operates as a corporation or trust that invests directly in real estate through outright ownership of physical property or mortgages. Although REITs trade on a stock exchange, they aren’t bought and sold like traditional equities. The category invests in three main types-

  • Equity REITs – It invests in and owns properties.
  • Mortgage REITs – It invests in mortgages or rentals.
  • Hybrid REITs – It invests in a combination of both.

Real Estate Mutual Funds – Real estate mutual funds offer many of the same benefits as REITs but are said to provide more diversification benefits and lower transaction costs as they are professionally managed accounts of pooled capital. Since they are managed professionally, they benefit from the knowledge and research of an entire firm.

Are real estate investment trusts (REITs) appropriate for long-term investors?
REITs must pay out much of their profits to shareholders as dividends, which makes them a good source of income, as opposed to capital gains. Long-term investors seeking appreciation through exposure to real estate may want to instead consider mutual funds that specialize in this asset class.

Which is more liquid: REITs or Real estate funds?
REITs are listed and traded on major stock exchanges. They tend to be more liquid than mutual funds, which can only be redeemed at the end of the trading day when the net asset value (NAV) is settled.
REITs and real estate mutual funds offer investors a way to access real estate. In general, REITs can provide a steady source of income through dividends. On the other hand, Real estate funds create much of their value through appreciation, which makes them attractive to longer-term investors.

(Contributed by Sweta Kumari, Financial Planner, Team Arjun, Hum Fauji Initiatives)

Life Lessons People Can Learn from Financial Markets

Being human we learn every day while doing or reacting to each happening in our life. We learn while playing, while travelling, by making mistakes, from failures and from people’s behaviour too. Being finance enthusiastic, the life lessons we can learn from financial markets are:
1) Avoid becoming overly attached: In life, we cling to bonds that are no longer meaningful. We are unwilling to alter behaviours that are more detrimental to us than beneficial. We cling to a past that no longer serves us. It takes bravery to let go. The rewards outweigh the danger. We become more receptive to the possibilities of the present when we let go of the past. Similarly, in financial markets, we can’t over-love one asset, according to a fundamental investing principle. In other words, don’t let emotions cloud your judgment. When a company’s fundamentals change, we take an exit from the stock, and reinvest in something else.

2) Skill and intelligence are exaggerated. Perseverance and discipline are underappreciated: Success is sometimes attributed to remarkable talent, but successful people typically possess average intelligence and talent. Their dedication and perseverance in sticking with it longer is what sets them apart. Start anything you want to do right now and stay with it. Adapt your strategy as you gain knowledge from your experience.In investing, the selection of stocks or funds is not as important. Diversifying, having the discipline to invest, and committing to a long-term strategy is more important in the long run.

3) Learning Never Stops: Both success and failure teach us something. Investing, like any other area of life, continues to evolve. We learn from our own experiences from others too.
Growth requires knowledge acquisition. Instead of being fearful when faced with a new situation, we can approach it with curiosity and gain new knowledge in the process.

The only one in charge of your well-being is you: We are all accountable for the life we lead. We can’t rely on others to fulfil our needs, make us happy, or complete us. We can’t expect somebody to care about us more than we care about ourselves.

You can rely on someone else known to you to handle your finances. However, they won’t be as concerned with your finances as you are, or may offer unqualified, insincere or untested advice which may even be based on conjectures. It’s your responsibility to either manage your finances yourself or pick the right financial adviser for you.

(Contributed by Ujjwal Dubey, Associate Financial Planner, Team Prithvi, Hum Fauji Initiatives)

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