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;
- The schooling cost is taken at Rs 60,000 pa (current cost).
- The coaching fee for 11th & 12th standard has been taken at Rs 2 lacs pa(current cost).
- The four years undergraduate cost is taken at Rs 2.5 lacs pa (current cost).
- The two year post graduation cost have been taken at Rs 10 lacs pa (current cost).
- The inflation rate is taken at 10% pa for both schooling and college education.
- 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 |
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|
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 |
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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
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Bhoi Smrutirekha Dharanidhar