How parents used mutual funds to send their daughter to IIM-A?

The cost of studying at IIM Ahmedabad, one of the top business schools in India, is Rs 31 lakh per year.

The cost of studying at Harvard University, one of the most prestigious universities in the world, is Rs 79.45 lakh per year.

The cost of 4-year engineering education (B.Tech/B.E) in the top Government institutes is around Rs 9 – 10 lakhs. In some of the top private institutes, the cost of engineering education can be as high as Rs 15 – 20 lakhs. The cost of medical education is similar, if not a little higher. In the next 10 years, applying an inflation rate of 10%, the cost of engineering or medical education may be in Rs 25 – 45 - 75 lakhs.

Parents need to plan for their children’s education

Over the last 20 – 25 years, with more and more graduates with engineering and/or MBA degrees entering the job market, the competition has been intensifying. Most Indian parents in the middle-income or higher-income groups have very high aspirations as far as their children’s careers are concerned. Parents need to have a savings and investment plan in place over a sufficiently long period of time in order to meet their children’s education goals.

Saving for children’s education

You should always factor inflation in determining your cost of higher education.

If you want to create a corpus of Rs 70 lakhs for your child’s graduate and post-graduate education, 10 years from now, you need to save and invest around Rs 30,000 per month (assuming a 12-13% annualized return on investment). The importance of an early start in financial planning can never be understated. If you have just 5 years to accumulate the same amount, you need to save more than Rs 80,000 per month.

Saving is not enough, focus on investing

The average fixed/recurring deposit interest rate is around 7.5% and fully taxable. The post-tax interest comes to around 5.5%. In the case of traditional life insurance endowment plans, the historical rate of return was 5 – 6%.

Indian mutual funds gave almost 14-18% return in past 10 years.

Success story

We have a client Sheetal and Manoj who started with modest SIP of Rs. 15,000 in October 2007 (right before the global financial crisis) and at that time her daughter (Riddhi) was just two years old. In the initial five years, SIP return was negligible because recovering from financial crisis, Indian economy went into currency crisis in 2012.

It took some time to explain them about why these factors were giving the opportunity to buy something at very low cost. They stayed put and kept investing. By 2014, their corpus was in a good profit showing double digit return - riding on Modi wave. Thereafter, they witnessed three times corrections of more than 20% but they knew this would create the wealth.

We redeemed these funds in June this year as her daughter wanted to join IIM-A and the joy on the parent’s face was priceless as they need not worry about the cost of admission. Even after paying the taxes, they could very well afford the admission fee without taking a debt burden.

Now they recommend this to almost all of their family and friends to start an SIP as soon as a child is born.
_{(The story has been published with their consent).}

Having witnessed this journey, we could only request you to spread the awareness of how mutual funds can help someone provide the right education. We want to work with all your references on building the corpus for children’s education.

If you know anyone who would like to plan this, you can give my contact details +919773687483 and email [email protected].

Have a wonderful day!

Best regards,
Tejas
Chartered Accountant
Fincare Services
From Wealth to Joy, We Bridge the Gap