Education Loan Strategy

Hi, I have Rs 4 Lakh savings, and my MBA education fees are Rs 5 Lakhs. I am considering if I should take an education loan of Rs 5 lakhs(while investing in mutual funds) or Rs 1 lakh(while using my savings to pay the fees) @ 12.5% monthly compounded. I want to consider factors like inflation, tax benefits on education loan interest.

I have not been keeping track of investment idea like mutual funds so please suggest the best option. I'm sure FDs are a bad idea as they pay less than the loan interest rate

asked May 20 '11 at 13:55 by lafifi 1111

There is a standard rule which says if are able to earn more than loan interest on deposit, then you should consider taking loan.

But there are various things to consider before getting a loan.

  1. Liquid funds: Everybody needs some liquid fund to take care of emergency situation. This amount should always be kept in safe avenues like fixed deposits or liquid mutual funds/saving account.
  2. Equity market investment: If you taking loan, the amount saved should be invested into equity based portfolio to give a better return than loan interest for a long period.
  3. Tax benefit: Whole interest paid on education loan is exempted from income tax. So compute the effective rate of interest and then compare it with return you expect from fixed deposits or mutual funds.

answered May 24 '11 at 14:30 by pankaj 5.2k320


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Asked: May 20 '11 at 13:55

Seen: 1,333 times

Last updated: May 24 '11 at 14:30