Have you planned for your childs education

January 12, 2018 | Posted by : Prakash Praharaj 4 comments

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 11^th & 12^th 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.

four comments

lizi /November 6, 2018 at 4:58 am / Reply

Excellent article

Sidharth /November 6, 2018 at 4:59 am / Reply

Thanks for the article

Aishwarya /November 6, 2018 at 5:00 am / Reply

Wonderful

Santosh /November 6, 2018 at 5:01 am / Reply

Really Learning full

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