Published On: Mon, Jun 15th, 2015

Planning your child’s education

Surendran Menon

Simple living and more saving

“There are so many variables — the cost of education, inflation, interest rate — at work and this makes the calculation difficult.” – Krishnan

Krishnan, an independent software consultant, with two sons, is a meticulous saver and investor. He has been working for the last 25 years and keeps aside 25-30 per cent of his income every month for investing.

So, how much is he prepared to pay for his children’s education? “My elder son is pursuing a Ph.D in Mathematics for which he got a scholarship. So, apart from his travel costs, I do not have to pay for any other expenses,” says Krishnan. His younger son has just completed school and is likely to pursue engineering.

According to Krishnan, it’s hard to estimate how much one needs to save for children’s education. He does not have much faith in online financial models either. “There are so many variables such as the cost of education, inflation, interest rate and this makes the calculation difficult. They can’t help you determine the right amount,” explains Krishnan. His philosophy is simple — live within your means and save as much as you can and that should keep you in good stead.

Krishnan has a well-diversified portfolio; savings are spread across bonds, NSC, PPF, bank and company fixed deposits, mutual funds and stocks. His wife has also been investing in gold exchange traded funds.

With his elder son’s education expenses already taken care of, Krishnan is confident his savings would be enough to support his younger son’s education.

Starting early helped

“Parents tend to be too sentimental about their children and want to provide for all their needs while doing little to build their retirement kitty.” – Surendran Menon

Forty-eight year old Surendran Menon, Senior Partner, Menon & Pai, Chartered Accountants, an audit firm in Chennai, is a content man today. His son is all set to join an engineering college in the city. Thanks to his systematic investing, Surendran will be able to pay comfortably for his son’s education without feeling the pinch.

“I took a triple-cover LIC policy, when my son was three. I planned it in such a way that the policy would mature when my son turned 18 and would give me around ₹10 lakh,” says Surendran.

He based his calculations on the assumption that his son would take up engineering and factored in an inflation rate of 10 per cent. Thankfully for him, things turned out as planned. “If my son had decided to pursue medicine, the cost would have been much higher and he would have had to take an education loan,” he says.

When Surendran, a Chartered Accountant, started his firm in 1993, he did not have much to back him. The seed capital his father gave him was used up in the business. As income from the business trickled in slowly, he was convinced that unless he saved systematically, he would not be able to ensure his family’s financial security. With that in mind he began investing in insurance policies for decent, risk-free returns.

One of the LIC policies that he has taken will mature in two-three years from now and is likely to fetch him ₹8-9 lakh. But, he is banking on it only for an emergency and to partly fund his son’s higher education, if pursued abroad.

Surendran feels that parents tend to be too sentimental about their children and want to provide for all their needs while doing little to build their own retirement kitty. “Let my son take a loan to fund his further studies and let there be some sense of responsibility,” says Surendran. “I have to take care of my wife’s and my retirement needs too,” he adds.

For his six-year old daughter, Surendran has chalked out a detailed investment plan. Two years after she was born, he started investing in the Public Provident Fund too.

He has been setting aside about ₹15,000 every month to build a corpus for his daughter’s education and marriage.

He has been investing this money in LIC policies, PPF and mutual funds. He plans to go for the Sukanya Samriddhi Scheme.

According to Surendran, starting out early and keeping it simple is what has worked for him. One doesn’t really need to invest in complex financial products to build a large sum of money for children’s education.

Making the most of online tools

“I used online calculators to arrive at the present value of the amount that I would require, many years from now.” – Srinivasu Kedarasetti

Srinivasu Kedarasetti, a 38-year-old software engineer with HCL Technologies, firmly believes that ‘those who fail to plan, plan to fail.’ With an investment plan in place for each of his life’s goals, he leaves nothing to chance.

But it was only after the birth of his second child that he got down to investing systematically for his children’s education. He has a son aged nine and a daughter aged five. Using online tools, he has worked out precisely how much money he would require.

“I used online calculators to arrive at the present value of the amount that I would require, many years from now. I have also accounted for a 7.5 per cent inflation rate,” says Srinivasu. What do his calculations reveal? “I would need ₹65 lakh for my son’s graduation and post-graduation, by 2022. For my daughter I would require ₹45 lakh by 2026,” explains Srinivasu. He would like his son to pursue his masters degree abroad.

He is investing in mutual funds and is also investing directly in small, mid and large-cap stocks. “With still many years to go, I can take the risk of investing in the stock markets. But, two years before my children are set to join college, I will move my money into fixed deposits,” says Srinivasu. He expects his investments to return over 15 per cent, during this time.

Krishnan, an independent software consultant, with two sons, is a meticulous saver and investor. He has been working for the last 25 years and keeps aside 25-30 per cent of his income every month for investing.

So, how much is he prepared to pay for his children’s education? “My elder son is pursuing a Ph.D in Mathematics for which he got a scholarship. So, apart from his travel costs, I do not have to pay for any other expenses,” says Krishnan. His younger son has just completed school and is likely to pursue engineering.

According to Krishnan, it’s hard to estimate how much one needs to save for children’s education. He does not have much faith in online financial models either. “There are so many variables such as the cost of education, inflation, interest rate and this makes the calculation difficult. They can’t help you determine the right amount,” explains Krishnan. His philosophy is simple — live within your means and save as much as you can and that should keep you in good stead.

Krishnan has a well-diversified portfolio; savings are spread across bonds, NSC, PPF, bank and company fixed deposits, mutual funds and stocks. His wife has also been investing in gold exchange traded funds.

With his elder son’s education expenses already taken care of, Krishnan is confident his savings would be enough to support his younger son’s education.

[“source-thehindubusinessline.com”]