TomorrowMakers

Here are three smart investing choices that ensure you don’t compromise on your financial future because of student debt.

Are you repaying a student loan? You can still invest!

Most young professionals enter the real world saddled with an education loan. The long tenure and high cost of borrowing can take away a lot of flexibility in terms of saving and spending freely because of the loan commitment. However, as a young, educated, and ambitious woman, you have more than enough ways to pay off the debt and meet your financial goals. All you need is a little discipline and smart money management skills.

Whether you are just starting out with your degree course or are on track to make repayments on your student loan, here are some simple investment choices that can help you reap rich rewards in the future.

1. Recurring deposits

RDs can serve as a primary option for women who do not want to take a risk with their investment or as a tool to diversify the portfolio and balance risk. The returns on recurring deposit vary from one bank to another and range between 5.5% and 7.5%, with tenures starting from six months and going all the way up to 10 years. This is a great option for students and young professionals who need to manage investments with limited resources. Unlike mutual funds, RDs are not subject to market risks and the interest rate is locked-in at the beginning of the tenure, protecting your investments from interest rate fluctuations as well. FAQs About Recurring Deposits: Everything you need to know.

Related: What to do if your student loan makes it hard to get a mortgage?

2. Mutual fund SIPs

Time is your biggest ally and with a little discipline you can create a substantial corpus with a systematic investment approach. Blue chip or diversified large-cap funds are subject to lower volatility and can give your portfolio a huge impetus over the long term. For example, four SIPs of Rs 2500 each in different large-cap funds can give you a corpus of Rs 8 lakh over a five-year period at an expected 12% return, or even more if you continue to stay invested!

Related: SIP vs Lumpsum Which one is right for you to invest in mutual fund?

3. Debt and money market funds

It is generally safe to assume that students or freshly minted graduates won’t have a large corpus that can be deployed right away. However, those who study away from home do tend to have reserves specifically earmarked for tuition, living expenses, utilities, or other ancillary spends. Rather than letting the money lie idle in a bank account, you can deploy the funds in a short-term debt or money market fund. Most liquid funds deliver between 5.8% and 7.3% returns, which is far superior to the interest that savings bank deposits offer. These funds are highly liquid and can be redeemed any time you need money urgently.

Related: Puzzled about debt funds? Here are answers to six common questions

Things to keep in mind

  • Prioritise your education loan: The repayment tenure of an education loan starts once your course is over. While studying and immediately afterward, your savings and investment priority should be focused on paying off the loan outstanding. Avoid going overboard with non-discretionary expenses or piling up credit card bills that could eat into your potential savings.
     
  • Start saving at the earliest: It doesn’t matter if you’re able save Rs 100 or Rs 10,000. The earlier you start, the more returns you will be able to generate on account of the compounding effect. By the time your repayment tenure starts, you could have saved up a substantial sum, taking away a lot of the financial pressure.
     
  • Do your due diligence: As a young investor, it is easy to get carried away with investment trends or recommendations from friends and colleagues. Everyone’s financial journey is different, and what may be a good investment for one person may not necessarily be suitable for another. Take time to gain sound financial knowledge and gradually build the expertise that can help you become a savvy and successful investor. Can having other loans affect your ability to buy a home?

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax advice. You should separately obtain independent advice when making decisions in these areas.