As a caring parent you would always want your child to get the very best. With growing standard of living, the Kid’s education expenses are consistently rising. I believe the average rate of education inflation (the rate at which education expenses are rising) is around 10% to 15% depending on the location.
In this post let us understand – How to calculate the future value of Kid’s Education Goal amount? How much should you save/invest for your kid’s College education?
For calculating the future cost of education expenses, you need below details:
Let us do the calculation with an example.
Example – Mr Sundaram wants to plan for his kid’s higher education. Child’s age is 5 years and will attend college in 12 years from now. As per his research, he came to know that the current cost of Engineering Education in his city is around Rs 5,00,000. He wants to find out what is the Future cost of his goal?
I have used MS-Excel’s FV function to calculate the future value of goal amount. (FV Function variables are Rate 10% from B4 cell, Duration 12 years from B3 cell and Current cost of education Rs 5 Lakh from B5 cell).
(For detailed explanation on “How to calculate Future Value?’ – Click here )
Mr Sundaram now knows that he requires around Rs16 Lakhs in 12 years from now. He further wants to calculate how much he has to save every year to achieve the goal amount. He also wants to find out how much he should save if he opts for Fixed Deposits (or) Mutual Funds (or) Stocks?
I have used MS-Excel’s PMT function to calculate the required Yearly Savings amount for Kid’s education. ( PMT function’s variables are D9-Rate-9%, B3-Term-12 years and B7 -Target Goal Amount-Rs 15.69 Lakh).
Scenario 1 (If Savings are invested in Fixed Deposits)
Mr Sundaram has to save Rs 77,913 per year for the next 12 years to achieve his goal amount of Rs 15.69 Lakh. The yearly savings amount is invested in Fixed Deposits which may give 9% returns. (You may refer the above “PMT function” image on how to calculate.)
Scenario 2 (If Savings are invested in Mutual Funds)
Mr Sundaram has to save Rs 73,382 per year for the next 12 years to achieve his goal amount of Rs 15.69 Lakh. The yearly savings amount is invested in Mutual Funds and he expects 10% returns from Mutual Funds.
Scenario 3 (If Savings are invested in Shares)
If Mr Sundaram decides to invest in Stocks then he has to save Rs 65,023 per year for the next 12 years to achieve his goal amount of Rs 15.69 Lakh. The stock investments may give him returns of 12%.
Important Points to Ponder upon
Download Calculator – Kids’ Education Goal amount . (In-fact you may use this calculator for any accumulation goals like vacation planning, Marriage expenses etc.,)
Liked the post? Please share it with your friends. What is the average per year increase of cost of college education in your location? Kindly share your comments.
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(Image courtesy of photostock at FreeDigitalPhotos.net)
This post was last modified on July 10, 2023 12:02 pm
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Investing in your child's education is a crucial financial consideration. While it's important to calculate the required investment, it's equally essential to strike a balance between financial planning and realistic expectations. Assessing the potential costs and starting early allows for a smoother investment journey, ensuring your child's educational aspirations are well-supported without compromising your overall financial stability. Finding this balance empowers you to make informed decisions, securing a brighter future for your child without undue financial strain.
Hi
I have 14k sip for a 15 years goal as child educational expenses with 60:40
All are in regular - plan and running ....
Invesco India Contra – 2,025
Motilal Oswal Multicap 35 -2,025
Principal Multicap -2,025
Tata Equity P/E Fund -2,025
Aditya Birla Sun Life Corporate Bond -2,700
Reliance Prime Debt Fund -2,700
As per return they are good as a over all portfolio and as per category and index bench mark.
What is your opinion for the above fund selection ?
I plant to invest sip of 30K per month (as per retirement planning and 7% inflation) to the same funds but in Direct mode
Is this a wise decision?
Dear bubai,
Kindly check the portfolio overlap for the four Equity funds and revert to me with your analysis.
1 & 4 are Value oriented schemes.
2 & 3 are mutlicap funds.
You may add an hybrid equity (balanced) and/or Mid-cap fund for our long-term Retirement goal. (1 Diversified equity fund + Balanced fund + Mid-cap fund).
Related article :
Mutual Fund Portfolio Overlap Comparison Tools
Hi... I was trying to calculate using PMT(how much to invest an year for the future value of my goal). It is showing result in '$' how to change the calculation to indian rupees?
If I choose a balanced and a large cap fund for my medium term goal(education), should i consider average rate of return of both of these funds, say 15% for large cap and 9 % for balanced and take their avg i.e. 12% as the rate of return for the PMT function?
thanks and Regards
Dear Yavika ..You may just multiple the result with Indian rupee equivalent.
For ex: 1 $ = Rs 65.
Yes, you may expect 10 to 12%.
Hi,
I'm 37 yr old with 2 year old daughter. I'm planning to invest in her education,marriage, my retirement and term insurance.
Presently I have two mortgage of total approx 80000.
What mix of investments do you suggest?
Hi,
Term insurance : Read - Best online term insurance plans.
You may consider investing in Equity oriented Funds, can be through SIPs (Systematic Investment Plans).
Suggested articles:
List of investment options!
List of important articles on Personal Financial planning!
Retirement goal planning calculator.
Hi Sreekanth,
Very nice write up. I am 35 years old and my child age is 4 months. I Start to do a SIP for my child education - that is required during his college education after passing class 12.
As you shown in the example with data , I can invest max 60-65 thousand yearly for his education purpose for the upcoming 15 years.
What MF you suggest me to start the SIP ?
By the way I have HDFC prudence MF for last 2 years with SIP 5000/ pm.
Thank you,
/shankha
Dear shankha,
You can continue with HDFC Prudence.
Can consider adding a Large cap fund, one diversified equity fund and one mid-cap funds to your portfolio.
Suggested articles:
How to pick right mutual fund schemes?
Best Equity funds.
MF portfolio overlap analysis tools.
List of important articles on Personal Financial planning.
Hi ,
why you suggest me Large-cap fund and Diversified or Multi-cap Fund instead of Small & Mid-cap fund for a period of 10 + years for child education ?
Thank you,
/shankha
Dear shankha,
I have suggested mid-cap fund too.
You can consider creating a diversified portfolio, may be with slightly higher allocation to mid cap fund.
Thank you.
I short - 1 will maintain 3 funds for upcoming 10 years . Can you suggest what I should choose in this case
1) HDFC prudence MF for last 2 years with SIP 5000/ pm
2) child education - Max 6-7 thousand pm
3) Retirement - Max 10 thousand pm
Can you suggest what i should choose for (2) and (3)
Thank you,
./shankha
Dear shankha ..As suggested in my previous comment, kindly read : Best Equity funds.
Hi Sreenath,
I want to invest around 5 lacs in lumpsum mutual funds scheme for 15 yrs.Can you please suggest is this the right time to enter.Also please suggest some good funds
Dear Richa,
As your investment horizon is long term, you may kindly go ahead and execute your investment plan.
Kindly read:
How to select right mutual fund scheme?
Best Mutual funds 2017.
MF portfolio overlap analysis tools.
Dear Sreekanth,
Thanks a lot for the guidance. Very precise and Excellent article. Made my calculations easy. Thanks a lot.
regards
RAJ
Thank you dear Raj..Kindly share the articles with your friends.
Happy new year :)
Hi Sreekanth,
First off, thanks a ton for putting up such useful information in such a easily understandable way with illustrations, explanations and for your supportive and thoughtful responses to all reader queries. Keep it up !
I want to invest 4K in suitable debt funds per month towards my goal of saving for my child's education needs, 8 years away. I'm saving 6K in monthly SIPs in diversified equity funds towards the same goal.
I want to know which are the debt funds which will be suitable for this purpose.
Thanks.
Dear Jayanthi,
Thank you for your kind words!
So, you would like to have 60:40 allocation between Equity & Debt funds??
Kindly read below articles;
Types of Debt Funds.
Best Debt Mutual Funds.
Best Monthly Income Plans of Mutual Funds.
Hi Sreekanth,
Yes, 60:40 allocation is my plan, 2 years prior to when I'm likely to require the money, I want to move a proportionate chunk of my equity investments into Debt.
I read up the information on Debt funds as you have suggested.
I would like to not risk any loss of capital in the debt portion of my investment.So, as liquid funds are the least risky in the Debt category, would it be prudent to start an SIP in one of the best in class liquid funds ?
Also, would it be wise to move my equity assets into this same liquid fund as my goal year approaches ?
On a different note, I would like to understand what the various debt market instruments are - treasury bills, commercial paper, bankers’ acceptances, deposits, certificates of deposit, bills of exchange, what they mean and how do they work. I want to understand for myself how the risk-return values are calculated for each, based on the nature of the instrument.
Can you please guide me on where I can get this information. Thanks a lot.
Dear Jayanthi,
Your strategy of switching to Debt funds before one year of target year, is good.
Liquid funds are safest out of the all debt fund types.
Kindly search in Google, plenty of info is available on debt securities.
I'll do that. Thanks Sreekanth.
Dear Shreekant,
I would like to have your esteemed comments on LIC's following two plan for my new born son.
1) LIC JEEVAN TARUN PLAN834-4-OPTION 4
2) LIC NEW CHILDREN MONEY BACK PLAN 832.
Regards,
Arun
Dear ARUN,
You may kindly read my reviews on these Plans;
LIC JEEVAN TARUN PLAN - Review
LIC NEW CHILDREN MONEY BACK PLAN - Review
Hi Srikanth,
I wanted to invest 5K per month. Can you please advice me on the investment areas which make me financially better.
Regards,
Laxman Jaiswal
Dear Laxman ..Kindly let me know your investment horizon (time-frame)??
Read:
Best Equity funds.
List of best investment options.
Plz guide me, I want to invest 3000 Rs PM. So I confused to invest in sip,share or ppf account. Plz guide me how can invest. My thinking is 2000 in sip and 1000 for ppf
Dear shrinivas ..May I know your investment objetive(s) & time-frame?
Read : How to create a SOLID investment plan?