Have you planned for your child’s education?

The cost of education is rising every year. Educating a child has become quite expensive now days. Warren Buffet says “The perfect amount to spend on children is  enough money so that they would feel they could do anything, but not so much that they could do nothing.“ Spending on children’s education is an investment. Many parents do not have an idea about the surprise and shock they may get if funding for children’s education are not planned in advance. It  always pays if one starts saving and investing early. We have made estimation on the funding cost of the newly born child for the future school and college education with the following assumptions;

  1. The schooling cost is taken at Rs 60,000 pa (current cost).
  2. The coaching fee for 11th & 12th standard has been taken at Rs 2 lacs pa(current cost).
  3. The four years undergraduate cost is taken at Rs 2.5 lacs pa (current cost).
  4. The two year  post graduation cost have been taken at Rs 10 lacs pa (current cost).
  5. The inflation rate is taken at 10% pa for both schooling and college education.
  6. The investment return for equity has been taken 12% pa.

 

Cost projection and required investment (Amt in Rs)

Year

Age

Class/Standard

Present Cost Future Cost Investment

2014

0

2015

1

2016

2

2017

3

LKG

       60,000           72,600        57,876

2018

4

UKG

       60,000           79,860        56,843

2019

5

1st

       60,000           87,846        55,828

2020

6

2nd

       60,000           96,631        54,831

2021

7

3rd

       60,000         106,294        53,852

2022

8

4th

       60,000         116,923        52,890

2023

9

5th

       60,000         128,615        51,946

2024

10

6th

       60,000         141,477        51,018

2025

11

7th

       60,000         155,625        50,107

2026

12

8th

       60,000         171,187        49,212

2027

13

9th

       60,000         188,306        48,333

2028

14

10th

       60,000         207,136        47,470

2029

15

11th

     260,000         427,850        87,547

2030

16

12th

     260,000         470,635        85,983

2031

17

Under Graduation

     250,000      1,148,743      187,385

2032

18

Under Graduation

     250,000      1,263,618      184,039

2033

19

Under Graduation

     250,000      1,389,979      180,752

2034

20

Under Graduation

     250,000      1,528,977      177,525

2035

21

Post Graduation

  1,000,000      6,727,500      697,418

2036

22

Post Graduation

  1,000,000      7,400,250      684,964

Total

  4,240,000    21,910,051   2,915,818

 Findings

One need to invest an amount of Rs 29.15 lakhs after the birth of a child generating a return of 12% pa or need to invest an amount of Rs28,000/-pm in equity through SIP for 21 years to meet  for the assumed amount of expenses for educating the child upto higher education.

Where to invest?

If the parents are not willing to take risks on investments through equity, although equity is safe for a longer horizon of 21 years; they may look for other options like Debt MF, Bank FD,EPF/PPF or Endowment insurance policies. The table below provides the indicative returns and the required investments through lump sum /regular savings(SIP).

Investment Types

ROI(Assumed)

Lumpsum(Rs)

SIP(21 yrs)(Rs)

Equity MF

12%

     2,915,818

       27,942

Debt MF*

10%*

     3,498,982

       33,530

Bank FD*

9%*

     3,887,758

       37,256

EPF/PPF

8.75%

     3,998,837

       38,320

LIC(Endowment)

6%

     5,831,637

       55,884

* Pre tax return and more amount required if tax is to be paid on return

 

 Where to look for advice?

But it is always advisable to take the help of a professional and independent Financial Planner and SEBI registered investment adviser to plan for the investment.

Reproduced with permission from SEBI RIA, Mr Prakash Praharaj

About the Author
Shri Prakash Praharaj
 topped the university during his graduation and post graduation in Commerce and has been awarded two gold medals. By training, he is an MBA and he has been awarded a Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is also a CERTIFIED FINANCIAL PLANNER CM and a Certified Personal Financial Adviser with 30 years of experience in the financial services sector under his belt, which include service at financial sector pillars like the Reserve Bank of India, United India Insurance Company, State Bank of India and SBI Life Insurance Company.

During the year 2010, he promoted Max Secure Financial Planners to provide fee-only financial planning advisory services and promote financial literacy. Today, he is a SEBI-registered Investment Adviser and helps plethora of investors to plan their financial lives and achieve their aspirations.

Mr Praharaj is listed on finvestor.in and you can ask him a query at finvestor.in

Image courtesy of stockimages at FreeDigitalPhotos.net

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