Time-Time ki Baat Hai – Part 2

“Hey Niraj, am back to seek your help again” said Uncle Shrikant to his nephew Niraj Desai.

“Completely my pleasure uncle, please tell me, how can I be of help to you.” Said Niraj

Shrikant: As you know, my younger son, Aakash is going for MBA to Australia.

Niraj: That’s great !! Congratulations

Shrikant: Please hold on!! The problem starts here. I had taken a child plan for Aakash in 1991 for a sum assured of Rs. 1 Lakh. The plan matured last December and I received a maturity value of Rs. 2.05 Lakhs. However, his course fees is more than Rs. 20 Lakhs. I am not able to understand what to do ? I don’t want him to start off his career with a loan. Thus, I was thinking of using some of my retirement money to fund his education.

Niraj: Do you think you should do so ??

Shrikant : I don’t know, that’s why I have come to seek your help.

Niraj : Well, in my opinion, he should take an education loan and you should not use your retirement funds because of following reasons:

1. First thing, education loan is a low cost loan. So effectively we will be availing money at a lower cost and thus invest your retirement money at relatively higher return avenues.

2. Even if both the interests are almost the same, we need to understand that Aakash can get an educational loan and has a lifetime to repay it. However, you won’t get a loan for retirement, and at this age, you can’t be going in for risky investments as well.

3. The Education loan repayment would have 2 benefits for Aakash. The interest payment would give him a tax break u/s 80E. Also, it will instil a habit of spending less from day 1 of earning. For example, after MBA if he gets a  job with a take home salary of Rs. 85,000 p.m. and has to pay an EMI of Rs. 40,000 towards his Education loan, then he will learn to live with the balance salary of Rs. 45,000 p.m. Thus, when his loan is repaid, this excess of Rs. 40,000 can be used in saving for his kids and retirement.

On the other hand, if there is no loan, he will be tempted to spend more from his salary, as he won’t have any major responsibilities. It will later be difficult for him to spend less and save for future.

Shrikant : You sound pretty logical. But I must say, your generation has a totally different mindset. Our generation always believed in living a debt-free life.

Niraj: Even we do uncle. We would love to have a debt-free life. But when the resources are limited, then the choice has to be made, between whether to take the responsibility on ourselves or whether to risk the retirement of parents.

Shrikant (getting little emotional) : You are absolutely right Niraj. But I must say, I really feel bad that because of my lack of planning, today my son has to take a loan for his education. Ideally, I should have planned well to fund his education. In fact, I did that. But due to my conservative nature, and belief in traditional endowment plans, I could not match inflation. Any ideas so which Aakash can follow, so that his children don’t have to take educational loan.

Niraj (smiles): I would suggest that when he starts earning, he should plan for both, his retirement as well as for his children’s future separately. Also, he should take into account inflation of 6-7% and invest into assets which give him returns over and above inflation. Lastly, not to chase plans having names “retirement plans” or “child plans”. Most companies are selling expensive insurance-cum-investment plans and looting investors under the disguise of planning for their children or retirement.

Shrikant : Times have changed. We all need to change according to time. Thanks for changing my thinking, Niraj.

We look forward to your feedback and comments on the above article. Please feel free to contact us on saurabh@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author. The characters used in the article are hypothetical)

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Published by professorbajaj

Prof. Saurabh Bajaj is an Author, Mentor, Motivational Speaker and Wealth Planner. He has done his MBA from Narsee Monjee Institute of Management Studies (NMIMS) Mumbai, one of the top 10 management institutes in India. He holds the prestigious FRM (Financial Risk Manager) degree awarded by Global Association of Risk Professionals (GARP), USA. Till date, there are less than 15,000 professionals in the world, who have been honored with this degree. He has also been awarded CFGP (Chartered Financial Goal Planner) Certification by AAFM (American Academy of Financial Management). After his MBA, he joined J P Morgan, the second largest Investment Bank in the world. He has worked with J P Morgan as Risk Analyst for more than two years. Prof. Bajaj also holds an Advisory certification awarded by AMFI (Association of Mutual Funds of India). During his stint at Bombay Stock Exchange, he has handled Investment Management and Treasury operations of the BSE Corpus. He has set up an entrepreneurship venture in the field of Wealth Planning and Investment Consulting under the name “Nidhi Investments” and holds the profile of CEO. Prof. Bajaj sits on the Expert Panel of CAClubindia.com and MBAClubindia.com as Investment Expert. He is actively involved in investor education through his blog www.professorbajaj.com which has a readership from 78 Countries all over the world. His articles are also regularly published in caclubindia.com , mbaclubindia.com , totalca.com , charteredclub.com, bankbazaar.com and lawyersclubindia.com . He has been awarded the title of “Best Article Writer” from caclubIndia.com in Jan 2012 and has been selected amongst “Top 5 Technical Writers” from all over India in Feb 2013. He has been invited by various TV Channels like SPIN TV, CNBC TV18, UTV Bloomberg Etc for programs like "Expert Advice" , "What Markets Want ", "Budget Analysis" etc. He has been invited by Several organisations like Lions Club, Rotary Club, Agrawal Welfare Foundation, Rajasthan Mandal, Agroha Vikas Trust, Union MF, UTI MF, Arthamitra Gurukulam, Vidyalankar Institute of Technology etc for expert lecture on "Smart Investing", "Life is A Celebration", "Financial Freedom", "The Digital IFA" etc. He was ranked 8th Merit at All India level NMAT which got him selected for MBA programme at NMIMS, Mumbai. He did his MBA with Capital Markets as his specialisation. Soft Skills has become an inevitable part of every selection process and teaching learning process these days. The students from small towns and tier II cities, in spite of being talented and well equipped with technical skills, are seen struggling in the selection process. This is because of their lack of exposure to these soft skills. Mr. Bajaj has a zeal for training candidates to develop these skills and has been imparting the same on since last two years. This zeal and passion inspired him to set up his own firm called “Knowledge Circle” which aims to train candidates for soft skills. Till date, he has trained more than 5000 participants from over 220 organizations across various fields of soft skills. He has been associated with MSBTE (Maharashtra State Board of Technical Education) to conduct Soft skills training workshop for the faculties of Polytechnic Colleges in Entire Maharashtra (Mumbai Region, Pune Region, Aurangabad Region and Nagpur Region) since last 8 years. He has also been associated with ICAI (Institute of Chartered Accountants of India) for training CA Students on various topics related to Communications skills, Group Discussions etc. He was invited by Fr. Agnel Polytechnic College, Vashi for a motivational workshop for faculties. He was also invited by Vivekanad Polytechnic College for "Communication Skills and Email Etiquette" training for non-teaching staff. Apart from these, he has conducted “Capacity Building Soft Skills workshop for Faculties” at ITI Gunj, ITI Pusad, ITI Digras and ITI Umarkhed. This was the first ever soft skills workshop for faculties in the history of ITI’s in Vidarbha. He was also invited by Shivaji Education Society to conduct similar Soft skills workshops for the faculties and office staff of Shivaji Junior College Pusad, Shivaji High School Pusad, Shivaji Vidyalaya Belora and Shivaji Vidyalaya Bhojla. He has conducted training workshop on “Effective Presentation Skills” for the relationship managers of HDFC Mutual Fund, Andheri Branch, Mumbai. He has also been invited at College of Management and Computer Science, Yavatmal, College of Dairy Technology, Warud, B N College of Engineering, Pusad, B D College of Engineering, Wardha, College of Engineering and Technology, Akola, Dr.N.P.Hirani Institute of Polytechnic, Pusad etc. for the Guest lecture on “Developing Interview Skills”.

16 thoughts on “Time-Time ki Baat Hai – Part 2

  1. Bhai after long time, yet pretty nice piece of info. 1 should always keep in mind investments returns should always above the inflation rate.

  2. Hey this really very nice article i must say.
    A perfect scenario gives you better idea. As it is very difficult to take a disicion on destructering our saving and that too retirement savings. Very well explained. Everyone should have financial planing.

  3. Good article. The aspect that I liked is its talking about a situation which could have been better if some correct decision would have taken in past. But, now what happened can’t be changed, and article talks about how to handle the given situation rather making more mistakes.

    Keep up the good work sirjee.

  4. Thank you So much for your insightful comments Sirji.

    Yes I agree that we need to focus on corrective actions than to keep regretting about old mistakes.

    Thanks again for your visit and feedback. Looking forward to more in future.

  5. Nice article.. especially because it considers a scenario which has become common to all of us and it considers many aspects which we neglect.

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