Education inflation is steep. Take the example of a prestigious engineering college in Mumbai; its fees in 1980 were around Rs.200 per semester. Today, the same institute charges around Rs.84,000, an increase of 420 times in 39 years!
We all want the best education for our children. However, planning for the rising expenses is no easy feat. These advisors looked at factors like inflation, historical trend to help their clients build a corpus to fund their child’s aspirations.
Neelesh Shah, Karnataka
One of his client’s sons wanted to study management in a foreign university. The client had started saving for his son since he was 5 years of age. Those days, the fees for an MBA degree was around Rs. 15 lakh. Factoring in inflation, Neelesh advised the client to accumulate a corpus of Rs. 50 lakh by the time the son turns 20. Targeting a high amount of Rs. 50 lakh meant that the client would have sufficient funds irrespective of the course finally chosen by his son.
Over the next 15 years, Neelesh advised the client to regularly top-up his SIPs and invest any bonus or insurance policy proceeds towards the goal. Keeping equity market risks in view, Neelesh asked client to start a SIP in equity funds and invest any lump sum amounts in debt funds. After twelve years, seeing the investment value nearing Rs. 50 lakh, Neelesh started transferring the equity investments to debt to mitigate risk.
In a pleasant turn of events, while the client achieved the target amount, he did not need it. The son chose to fund his education himself through a mix of his savings, university aid and education loan. The education corpus was now available to the son to fulfil some other goal.
Sudhanshu Sekhar Mohapatra, Odisha
While goal based planning is the buzzword today, it was not so common fifteen years back, shares Sudhanshu. Fund houses had first launched children’s plan in 2004-2005; Sudhanshu advised his clients to invest in these schemes to save for their children’s education. Sudhanshu knew that thanks to the lock-in, the money would remain invested irrespective of market movement.
One such client wanted to save for his son’s graduation. Based on current college fees and inflation, Sudhanshu advised the client to invest Rs. 74,000. Assuming his investment grew at 12%, Sudhanshu calculated that the client would get about Rs. 4 lakh after 15 years to meet the college expenses. Luckily, the investment grew to Rs. 5.12 lakh and the client paid the engineering college fees and hostel expenses comfortably without redeeming any investment or borrowing money.
