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June 5, 2000
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Earlier: • Saving for a home
Rohit Sarin now moves on to explaining how to plan and save for your child's education.
We will restrict this analysis within the following parameters:
- Individual will be 45 years of age when the child is ready for higher education
- Balanced risk appetite
- Estimated current cost of higher education stands at Rs 500,000
- No existing savings specifically for higher education
- A 12 per cent per annum return on debt funds
- A 20 per cent per annum return on equity funds
- Inflation at the rate of 8 per cent
CASE IRecommendations in the case of the 25 year-old....................
- A recommended debt to equity ratio of 40:60. For this, a mix of debt and equity based funds should be selected.
- Estimated current cost of higher education of Rs 500,000 would inflate to a Rs 23,30,479 after 20 years.
- Assuming that this would not be part financed by a loan, an amount of Rs 23,30,479 would have to be saved over a period of 20 years.
- With a debt to equity mix of 40:60, the person needs to begin with a total monthly investment of Rs 967. This monthly saving/contribution would keep on increasing every year.
In figures, the complete 20-year plan translates to..............
| Year |
Sr. No. |
Equity Fund |
Debt Fund |
Total |
Yearly |
Income |
Cumm. Balance |
| 2000 |
1 |
580 |
387 |
967 |
11,608 |
901 |
12,509 |
| 2001 |
2 |
638 |
426 |
1,064 |
12,769 |
2,823 |
28,101 |
| 2002 |
3 |
702 |
468 |
1,170 |
14,046 |
5,205 |
47,351 |
| 2003 |
4 |
773 |
515 |
1,288 |
15,450 |
8,132 |
70,934 |
| 2004 |
5 |
850 |
567 |
1,416 |
16,995 |
11,704 |
99,633 |
| 2005 |
6 |
935 |
623 |
1,558 |
18,695 |
16,038 |
134,366 |
| 2006 |
7 |
1,028 |
685 |
1,714 |
20,564 |
21,268 |
176,198 |
| 2007 |
8 |
1,131 |
754 |
1,885 |
22,620 |
27,552 |
226,370 |
| 2008 |
9 |
1,244 |
830 |
2,074 |
24,888 |
35,073 |
286,331 |
| 2009 |
10 |
1,369 |
912 |
2,281 |
27,372 |
44,044 |
357,747 |
| 2010 |
11 |
1,505 |
1,004 |
2,509 |
30,108 |
54,712 |
442,567 |
| 2011 |
12 |
1,656 |
1,104 |
2,760 |
33,120 |
67,363 |
543,051 |
| 2012 |
13 |
1,822 |
1,214 |
3,036 |
36,432 |
82,331 |
661,814 |
| 2013 |
14 |
2,004 |
1,336 |
3,340 |
40,080 |
100,002 |
801,896 |
| 2014 |
15 |
2,204 |
1,469 |
3,673 |
44,076 |
120,820 |
966,791 |
| 2015 |
16 |
2,425 |
1,616 |
4,041 |
48,492 |
145,303 |
1,160,587 |
| 2016 |
17 |
2,667 |
1,778 |
4,445 |
53,340 |
174,052 |
1,387,978 |
| 2017 |
18 |
2,933 | 1,956 |
4,889 |
58,668 |
207,755 |
1,654,402 |
| 2018 |
19 |
3,227 |
2,151 |
5,378 |
64,536 |
247,215 |
1,966,153 |
| 2019 |
20 |
3,550 |
2,366 |
5,916 | 70,992 |
293,357 |
2,330,502 |
CASE IIRecommendations in the case of the 30 year-old....................
- Recommended debt to equity ratio of 50:50. For this, a mix of debt and equity based funds should be selected.
- Estimated current cost of higher education of Rs 500,000 would inflate to Rs 15,86,085 after 15 years.
- Since it is assumed that this would not be part financed by a loan, an amount of Rs 15,86,085- would need to be saved over a period of 15 years.
- With a debt to equity mix of 50:50, the person needs to begin with a total monthly investment of Rs 1,662. This monthly saving/contribution would keep on increasing every year.
In figures, the complete 15-year plan translates to............
| Year |
Sr. No. |
Equity Fund |
Debt Fund |
Total |
Yearly |
Income |
Cumm. Balance |
| 2000 |
1 |
831 |
831 |
1,662 |
19,946 |
1,482 |
21, 429 |
| 2001 |
2 |
914 |
914 |
1,828 |
21,941 |
4,631 |
48,000 |
| 2002 |
3 |
1,006 |
1,006 |
2,011 |
24,135 |
8,514 |
80,649 |
| 2003 |
4 |
1,217 |
1,217 |
2,434 |
29,203 |
19,035 |
168,699 |
| 2004 |
5 |
1,217 |
1,217 |
2,434 |
29,203 |
19,035 |
168,699 |
| 2005 |
6 |
1,338 |
1,338 |
2,677 |
32,124 |
26,005 |
226,828 |
| 2006 |
7 |
1,472 |
1,472 |
2,945 |
35,336 |
34,382 |
296,546 |
| 2007 |
8 |
1,620 |
1,620 |
3,239 |
38,868 |
44,405 |
379,819 |
| 2008 |
9 |
1,782 |
1,782 |
3,563 |
42,756 |
56,352 |
478,927 |
| 2009 |
10 |
1,960 |
1,960 |
3,919 |
47,028 |
70,545 |
596,499 |
| 2010 |
11 |
2,156 |
2,156 |
4,311 |
51,732 |
87,354 |
735,586 |
| 2011 |
12 |
2,371 |
2,371 |
4,742 |
56,904 |
107,211 |
899,701 |
| 2012 |
13 |
2,609 |
2,609 |
5,217 |
62,604 |
130,611 |
1,092,915 |
| 2013 |
14 |
2,869 |
2,869 |
5,738 |
68,856 |
158,125 |
1,319,896 |
| 2014 |
15 | 3,156 |
3,156 |
6,312 |
75,744 |
190,414 |
1,586,055 |
CASE IIIRecommendations in the case of the 35-year old....................
- Recommended debt to equity ratio of 50:50. For this, a mix of debt and equity based funds should be selected.
- Estimated current value of education of Rs 500,000 would inflate to Rs 10,79,462 after 10 years.
- Since it is assumed that this would not be part financed by a loan an amount of Rs 10,79,462/- would need to be saved over a period of 10 years.
- With a debt to equity mix of 50:50 the person needs to begin with a total monthly investment of Rs 3,008. This monthly saving/contribution would keep on increasing every year.
In figures, the complete 10-year plan translates to..............
| Year |
Sr. No. |
Equity Fund |
Debt Fund |
Total |
Yearly |
Income |
Cumm. Balance |
| 2000 |
1 |
1,504 |
1,504 |
3,008 |
36,096 |
2,682 |
38,778 |
| 2001 |
2 |
1,654 |
1,654 |
3,309 |
39,705 |
8,380 |
86,863 |
| 2002 |
3 |
1,820 |
1,820 |
3,640 |
43,676 |
15,407 |
145,945 |
| 2003 |
4 |
2,002 |
2,002 |
4,004 |
48,043 |
24,003 |
217,991 |
| 2004 |
5 |
2,202 |
2,202 |
4,404 |
52,847 |
34,446 |
305,284 |
| 2005 |
6 |
2,422 |
2,422 |
4,844 |
58,132 |
47,060 |
410,477 |
| 2006 |
7 |
2,664 |
2,664 |
5,329 |
63,945 |
62,219 |
536,641 |
| 2007 |
8 |
2,931 |
2,931 |
5,862 |
70,344 |
80,357 |
687,342 |
| 2008 |
9 |
3,224 |
3,224 |
6,448 |
77,376 |
101,978 |
866,696 |
| 2009 |
10 |
3,547 |
3,547 |
7,093 |
85,116 |
127,663 |
1,079,475 |
Next: • Saving for your child's marriage
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