1. It's a fact that financial planning based on nominal inflation rate is very dangerous for meeting retirement goals, long-term healthcare and higher education expenses, even worsening as our earning years go by.
2. Just for info, 38-year CPI inflation has galloped at 7% CAGR, with last 5 years being between 4-9%.
3. On the other hand, higher education cost has been increasing at nearly double the general inflation rate, i.e. by one-sixth annually.
4. It means that a specialized course costing Rs.1 lakh this year would cost Rs.1.16 lakh next year, Rs.1.35 lakh two years from now, and about 6-7 times in next 15 years, which may not always be possible to meet with annual rate of increase in our salary.
5. However, a robust long-term financial plan, from child's early age, that can increase by at least 13-15% CAGR, would help meet this essential life goal.
6. Start with main earning parent buying a pure online life term plan, for covering 6-7 times of target course's present cost, and for a period equal to the number of years left for child to go for that specialized course, in order to ensure that there is no interruption if earning parent is not around.
7. Thereafter, start uninterrupted step-up SIPs in 1/2 multicap MFs for a similar period left for that course, and starting STPs into a short-term debt fund before 2 years, to safeguard accumulated returns from any short-term volatility, when the funds would be needed,
8. In case you still fall short marginally, opt for an education loan for a convenient amount, with an EMI holiday provision, so that child starts paying it after getting a job (and with tax benefits too).
9. A Ready Reckoner to meet total course cost (E&OE):-
a) 4-yr B.Tech: 2018 - 25 lakh; 2030 - 75 lakh
- 22,000 SIP @13% CAGR for 12 years.
b) 2-yr MBA: 2018 - 40 lakh; 2033 - 1.6 cr
- 29,000 SIP @13% CAGR for 15 years.
c) 5-yr MBBS: 2018 - 40 lakh; 2030 - 1.25 cr
- 36,000 SIP @13% CAGR for 12 years.
d) 2-yr MD: 2018 - 45 lakh; 2033 - 1.93 cr
- 36,000 SIP @13% CAGR for 15 years.
(Starting even earlier will reduce SIP amount considerably, and step-up SIPs would help further)
10. Remember to apply entire procedure to provide higher education to BOTH the BOY and GIRL child individually, by clearly earmarking different sets of term policies and funds as required by the target courses.
2. Just for info, 38-year CPI inflation has galloped at 7% CAGR, with last 5 years being between 4-9%.
3. On the other hand, higher education cost has been increasing at nearly double the general inflation rate, i.e. by one-sixth annually.
4. It means that a specialized course costing Rs.1 lakh this year would cost Rs.1.16 lakh next year, Rs.1.35 lakh two years from now, and about 6-7 times in next 15 years, which may not always be possible to meet with annual rate of increase in our salary.
5. However, a robust long-term financial plan, from child's early age, that can increase by at least 13-15% CAGR, would help meet this essential life goal.
6. Start with main earning parent buying a pure online life term plan, for covering 6-7 times of target course's present cost, and for a period equal to the number of years left for child to go for that specialized course, in order to ensure that there is no interruption if earning parent is not around.
7. Thereafter, start uninterrupted step-up SIPs in 1/2 multicap MFs for a similar period left for that course, and starting STPs into a short-term debt fund before 2 years, to safeguard accumulated returns from any short-term volatility, when the funds would be needed,
8. In case you still fall short marginally, opt for an education loan for a convenient amount, with an EMI holiday provision, so that child starts paying it after getting a job (and with tax benefits too).
9. A Ready Reckoner to meet total course cost (E&OE):-
a) 4-yr B.Tech: 2018 - 25 lakh; 2030 - 75 lakh
- 22,000 SIP @13% CAGR for 12 years.
b) 2-yr MBA: 2018 - 40 lakh; 2033 - 1.6 cr
- 29,000 SIP @13% CAGR for 15 years.
c) 5-yr MBBS: 2018 - 40 lakh; 2030 - 1.25 cr
- 36,000 SIP @13% CAGR for 12 years.
d) 2-yr MD: 2018 - 45 lakh; 2033 - 1.93 cr
- 36,000 SIP @13% CAGR for 15 years.
(Starting even earlier will reduce SIP amount considerably, and step-up SIPs would help further)
10. Remember to apply entire procedure to provide higher education to BOTH the BOY and GIRL child individually, by clearly earmarking different sets of term policies and funds as required by the target courses.