Child Future Plan-the biggest financial worry for most of the parents is how to secure their children’s future. How to fund their higher education? How to fund their marriage? In southern states, the gold transacted during marriage is in kilos and in states like Punjab; a luxury car is part of the marriage gift!
Suresh is working in a software sector and is having a son and a daughter. He is aged 35 and his son and daughter both aged 8 and 6 years. His wife Arti is a housewife who takes tuitions to keep herself active. Suresh is worried about how to plan for a secure future for his kids.
He doesn’t have any idea which stream, his kids would prefer when they grow up. They can opt for management, engineering, medicine, teaching etc. as per their choice. The only thing, he can do is to plan in advance, so that he will have the necessary amount for their education.
Now the biggest financial worry for most of the parents is how to secure their children’s future. How to fund their higher education? How to fund their marriage? In southern states, the gold transacted during marriage is in kilos and in states like Punjab, a luxury car is part of the marriage gift!
Child Future Plan- Higher Education Cost
Before going further, we should study the costs attached to higher education and marriage. With opening of more and more hi-tech colleges in many sectors, the cost of higher education is sky rocketing. If you want to send your child for a medical field, the cost can be above Rs. 25 Lakhs, if the child manages to get a seat for MBBS and Post Graduation in merit. Post Graduate degree in Engineering can be managed within Rs. 10-15 Lakhs. The cost of an MBA course vary between Rs. 4 Lakhs and Rs. 25 Lakhs depending on the college.
The silver lining is the availability of Education Loan at reasonable rates. You can easily manage an education loan in the range of 12-14% interest. The interest paid on the loan can help you and your child in saving income tax too.
Child Future Plan- How to Plan Education Expenses
After seeing the current trend in education cost, Suresh is planning to create an amount of Rs. 15 Lakhs for both his children when they are aged 18. He expects the cost to escalate @ 8% per annum. Let us see the plan for Suresh.
The value of Rs. 15 Lakhs after 10 years for his son: Rs. 32 Lakhs
The value of Rs. 15 Lakhs after 12 years for his daughter: Rs. 38 Lakhs
If you assume an annualised return of 12% from Equity Mutual Funds, Suresh can manage to create an amount of Rs. 32 Lakhs by investing Rs. 15,000 per month in the next 10 years. He can create Rs. 38 Lakhs for his daughter by investing another Rs. 12,000 per month.
Suresh has to invest Rs. 27,000 per month for the higher education expenses alone.
Child Future Plan – How to plan for Children’s Marriage expenses?
Suresh wants to spend Rs. 5 Lakhs for his son’s marriage, whereas he wants to spend Rs. 15 Lakhs for his daughter’s marriage. These are at current costs and he expects an average cost escalation of 6% in marriage expenses.
Value of Rs. 5 Lakhs after 18 years for son’s marriage: Rs. 14 Lakhs
Value of Rs. 15 Lakhs after 19 years for daughter’s marriage: Rs. 45 Lakhs
Assuming a 12% investment return in equities, he has to invest Rs. 2,000 for his son and Rs. 6,000 for his daughter.
So, Suresh has to invest Rs. 8,000 for the children’s marriage needs.
Suresh has to plan for an investment of Rs. 35,000 per month. At present, he is investing Rs. 10,000 per month in Mutual Fund SIPs. He is also investing Rs. 1 lakh per year in PPF for his retirement. What is required is an additional Rs. 25,000 investment in SIPs to make it Rs. 35,000. He can do the SIPs in 4 – 5 good performing mutual funds from reputed Fund Houses as per the recommendation of his Financial Planner. He can choose the direct plan option in mutual funds, which are attractive with lesser charges.
He has to review the performance of these funds on a half yearly basis and take corrective steps if necessary. All funds will not perform well for long periods. He should reduce the equity component, when he is nearing the goal. It is recommended that in the last 3 years before the goal, the SIPs can be in Debt Mutual Funds.
With an average annual salary increase of 10% in the IT sector for the last 5 years, Suresh is confident of continuing these SIPs for the future needs of his children. But his next worry is the retirement, which is also just 20 years away. He hopes to manage it with his PF, Gratuity and PPF.
“Child Future Plan” – Have you made one for your child????