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).
  • 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

     

    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.

    Last modified on Wednesday, 10 February 2016 06:48

    Prakash Praharaj

    Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

    5 comments

    • Sujata Aniruddha Sapkal

      posted by Sujata Aniruddha Sapkal

      Saturday, 04 July 2015 07:00

      we merely consider the present cost scenario of education while considering child education investment but one should not forget about the big factor affecting the fee structure i.e.Inflation.

      Education cost in future is going to run in crores ...so its better to start investing slowly but steadily.

      Report
    • minecraft.Net

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      Friday, 22 May 2015 22:29

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    • Minuman berenergi

      posted by Minuman berenergi

      Thursday, 14 May 2015 15:48

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      Report
    • ranjit

      posted by ranjit

      Tuesday, 02 December 2014 12:22

      Needful artcle

      Report
    • Neeta

      posted by Neeta

      Tuesday, 02 December 2014 12:19

      Good article

      Report

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