Q1. I want to take out a loan for my child’s higher education. What should I know before I go for it?
Start with the course you want your child to take. Is the child interested in that? What do you know about the institution where your child is planning to get into? Check on their fee structure and placement record. Compare the fees vis-à-vis the likely salary when the child is placed after completing the course. That will tell you how easily the child will be able to repay the loan.
Banks do not ask for any security for loans up to ₹4 lakhs but will do their due diligence. This is an investigation of your financial situation from the point of view of your (and your child’s) ability to repay the loan in time.
If the loan amount is more than ₹4 lakhs but less than ₹7.5 lakhs, then the bank will ask for a third-party guarantor or co-borrower. If you need more than ₹7.5 lakhs then you will need to submit a collateral (an asset pledged to the bank) that is of the same value as the loan.
Usually, the bank will allow a moratorium period during which the borrower does not need to start repaying. Repayment will start after the moratorium. For an educational loan, the moratorium period will be in force until up to one year after the completion of the course so that the student can use the time to start earning. However, if you can, it is prudent to pay the interest even during the period of moratorium. This will help to bring down the total amount of interest.
Q2. We got married a year ago and have recently become parents. As a financial advisor, what is your advice for us?
Congratulations on becoming parents! You have chosen the right time to seek advice on your financial future as a family.
Please note that a financial advisor would consider the situation specific to your family before offering any advice. However, here are a few general tips for all new parents.
Revisit your monthly budget: Now that you have a welcome addition to the family, it is time to take another look at your budget. Your expenses are now bound to go up. However, you should not stop or curtail your investments (including SIPs) to meet the additional expenses. Track all your spending and then create a fresh budget. See if you can cut down non-essential expenses.
For example, if you used to dine out or order in food twice a week, maybe you can cut it down to once or twice every fortnight? Skip that movie night out every week and catch your favourite movie on an online platform, perhaps?
Increase your emergency corpus: With a new member requiring shelter from the unexpected, it is time to expand the umbrella. Increase your emergency corpus to cover at least six months of your updated expenses tally.
Provision for new goals: Time will fly as the baby starts growing. Soon it will be time to think of school, college and beyond. It is advisable to start with what you can save and gradually increase your investments as your income grows. An early start, even if small, will make a huge difference.
Buy term insurance: If you do not have it already, it is time to buy your life insurance cover. It is recommended to opt for a cover 10 times your yearly income. This will help your family cope with worst-case scenarios.
Add baby to the family floater cover: If you already have a family floater plan then check with your insurance agent about adding your child to it. Generally, you can add the child to your health plan 90 days after the baby’s birth. If you don’t have health insurance yet, get one.
The above tips may look simple, but might not be easy. In case it gets difficult to manage everything on your own - your bundle of joy, work, and all other things in life - you could look to work with a Financial Planner or a Financial Advisor who can chart your financial journey, monitor your moves and help you reach your goals.
Q3. I have had a long working life and am now planning to retire. What am I like to need in terms of finance?
Regular income after retirement: Your most important need after retirement will be ensuring regular income to meet your needs. Most of us would like this income to continue through our lifetime and beyond so that it can support our family after we are no more.
Meet lumpsum needs: All of us would like to be debt-free when we retire. That means paying off any outstanding debt. Or you may need to repair and refurbish your old home that you will now move into. Apart from this lumpsum need, you will also need some liquid funds to meet likely one-time needs in the future.
Provide for inflation: Inflation means a reduction in the purchasing power of money. In other words, as prices increase, you need more money to purchase the same quantity of something or the same service. If you have managed to provide for a regular income after retirement, make sure that this will rise over time to beat inflation. Else, you will be forced to curtail your lifestyle or spend more to maintain the same lifestyle.
Be prepared for medical emergencies: As one ages, medical expenditure tends to go up. A medical emergency will increase the need for support, both physical and financial. With increasing cost of health care, it is very difficult for anybody with a fixed regular income to pay for medical emergencies. Your health insurance may cover only part of the expenditure. Therefore, your emergency fund must also take care of your medical needs, should the need arise.
Q4. Sneha, 47, is an experienced architect. Most of her money is in the bank and she also has a few investments. She wants help to grow her money to provide for her family’s future. Who can help her?
When it comes to managing finance, Sneha is not alone. Many successful professionals are confused about growing their money. How, when and where should they invest? For them and for Sneha, the best help can come from someone who can understand each of them as an individual and has a thorough knowledge of the money market. In other words, she should consult an investment advisor.
Who is an investment advisor?
According to the Securities and Exchange Board of India (SEBI), investment advice is advice that relates to investing in, purchasing, selling or otherwise dealing in securities or investment products, and to investment portfolios containing securities or investment products. To be legally qualified as an investment advisor, one must be certified by SEBI. Of course, apart from the ability to assess an individual's life goals and risk appetite, the investment advisor must always be abreast of investment products and market trends.
Benefits of consulting an investment advisor
- Helps in creating a financial plan which covers all aspects of an individual’s financial requirements including savings, short term goals, long term goals, retirement plan, etc.
- Provides the benefit of updated knowledge of the markets and various financial products.
- Has the expertise to recommend optimum ways to grow one’s corpus keeping in mind individual needs and preferences.
- Helps keep check on the portfolio and make timely amendments to align with shifts in market trends and changes in the individual’s goals.
Therefore, Sneha is best advised to engage an investment advisor for the long-term, who can be her trusted partner to help grow her money over a period.
Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.