Do you need to worry about current low returns in debt funds?

Winters are approaching and we all have started taking out our woolens and packing the cotton clothes. But do you really consider cotton clothes as irrelevant and throw them away in the winters?

We know it’s a very funny question to pose and the simple answer is NO. But unfortunately, we lose this simple practical rationale when we think about our investment portfolio.

No fund will be performing 24X7 throughout the 12 months of a year but this doesn’t make any fund irrelevant for the portfolio. If the fund is fundamentally good, it doesn’t make sense to redeem it unnecessarily.

Currently, debt funds are facing the criticism of low returns. It is simply due to the macroeconomic scenario, which is a fairly temporary phenomenon, and there is nothing to worry about their fundamentals.

In order to provide support to the COVID impacted economy, interest rates have been set low throughout the world temporarily which has a temporary negative impact on the debt fund returns.

However, increase in consumer demand and the inflation rate thereon is also very much on the cards now as a clear indicator of revival of the economies.

Hence, the interest rates are expected to rise soon and you just need to stick to your simple practical rationale of not throwing away your cotton clothes. If you churn your funds too much and too frequently, you will only end up paying unnecessary exit loads and taxes.

(Contributed by Devanshu Anand and Bibhuti Gaurav, Associate Financial Planners, Team Prithvi, Hum Fauji Initiatives)

Pros and Cons of Education Loan

Education is getting quite expensive these days, but quality education is definitely a must for a successful life and career growth. Parents obviously want the best of education for their children. Ideally, one should be saving small appropriate amounts systematically over long periods of time (as a large number of armed forces families are doing with us) so that the money builds up through the powerful concept of long-term compounding.

For those who have not been able to do so, an education loan plays this vital role of bridging the gap between the available and the required amount. But, as we know, there is always the pros and cons of everything which must be known before taking any action.

Pros of an Education Loan

1) It makes education accessible irrespective of the financial constraints.

2) Education loan interest rate is reasonably low. A girl student and persons with disability get concession as well. Also, the complete interest paid on an education loan is allowed as a deduction from the total income under Section 80E.

3) Repayment of the principal part of the education loans can be deferred till generally Six months after the completion of the course or on getting the job, whichever is earlier.

4) Education Loan makes the child more responsible towards the course, career and ultimately towards the life due to the realization of a big liability on the family.

Cons of an Education Loan

1) Loaning agencies, generally the banks, have a very strict eligibility criteria for giving education loans. Also, only reputed institutes with a good placement track record are preferred.

2) While it is expected that a loan will develop sense of responsibility, it might create mental pressure too upon the child. It sometimes becomes challenging for the parents to channelize this pressure of the child in a positive way.

3) Deduction is available only for 8 years starting from the year in which you start repaying the loan or until the interest is fully repaid whichever is earlier. For bigger loan, especially for education abroad, this could be quite challenging as the EMIs could be high.

Hence, from analytical point of view it becomes sensible to opt for education loan but psychological point of view also can’t be ignored and in fact it sometimes plays a major role in such decisions. Take your own call then.

(Contributed by Mansi Singhal, Relationship Manager, Team Prithvi, Hum Fauji Initiatives)

चिता (pyre) burns a dead body, चिंता (worry) burns a living body

Today almost everyone is worried. Children’s education/marriage, post retirement life, self-owned home – the list is endless.

Various reasons behind this worry/anxiety are as follows :

1) I can do it myself: We all are good at something but not everything. The problem starts with our lack of trust on professionals and our over-confidence on our own abilities.

2) Lack of Planning: A well-made plan with a professional’s advice kills 90% of anxieties/worries.

3) Lack of discipline in execution of the plan: A doctor can only diagnose the disease and recommend a prescription of medicines thereon. It is the duty of the patient to have faith on the Doctor, follow the prescription and take the medicines timely.

4) A plan’s execution needs to be timely reviewed too: If a patient recovers from a disease, it doesn’t mean he becomes disease-free for life now. Routine Health Checkups remain a part and parcel of life. Investors also can’t follow a blind “Invest and Forget approach”. Portfolio needs to be timely reviewed too.

5) Anxiety due to market volatility: Staying calm in both happiness /sorrowful moments of the bullish and bearish markets is a big challenge. One should stick to the advice given and not take any emotional charged decisions.

If you are also feeling any financial planning related stress/worries, please let us know. We would be happy to help you resolve it.

(Contributed by Jatin Uppal, Deputy Manager, Hum Fauji Initiatives)

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