Young couple, Jeyanth and Roshini are keen to ensure certainty of funding towards their daughter’s education goals coming up in five years.

Jeyanth and Roshini are in their early 40s. They run a start-up in Bengaluru. They want to plan for the education of their daughter, Sana. Sana aspires to do her undergraduate studies in the US.

Jeyanth is quite confident of getting ₹20 crore in the next five years from the couple’s start-up as part of his payout. Nevertheless, he wants to ensure that unexpected developments do not derail Sana’s education dream.

The couple, along with their daughter, enjoy an affluent lifestyle, spending ₹2 lakh a month on average. Sana studies in an international school in Bengaluru; costs for her education and other extra curricular activities come to around ₹6 lakh a year. She would like to move to the US for her undergraduate course in fashion designing.

We arrived at a current cost of ₹1.5 crore for the course after a detailed discussion with the family. We also agreed to work with an inflation factor of 8 per cent per annum for the next five years, covering the cost of education and the currency depreciation. After discussing various instruments available for the family in India and the US, it was decided to opt for India-based instruments with a strategy to manage currency movements during accumulation and disbursement.

Jeyanth and Roshini both understand investment products and are willing to opt for high-risk strategies. Our suggestion of moderating the risk in the investment portfolio for education was appreciated, as this goal is a time-defined, high-priority objective for which they do not have any alternative assets available.

Review and recommendations

An action plan was drawn up for the couple in line with their resources and the strategies open to them.

1.      Jeyanth and Roshini were advised to opt for ₹2 crore life insurance cover for each to protect this goal, in addition to the life insurance cover already available.

2.      They were also advised to opt for adequate health and accidental life cover.

3.      Sana’s education cost will increase to ₹2.2 crore in the next five years. A moderate investment portfolio may be expected to generate around 10 per cent CAGR in the next five years. This will help them get a corpus of ₹1.6 crore in the next five years’ timeframe. They may fall short by ₹70 lakh.

4.      It was suggested that they invest ₹10 lakh every year in addition to the monthly commitment towards this goal. Roshini was willing to commit this amount annually from her additional assignments.

5.      Discussions with the family revealed that it may be tough for them to fund this goal with monthly commitments as they were not used to saving or investing on a monthly basis, over the last 5-7 years, apart from their committed housing loan EMI.

Hence, it was recommended that they set aside ₹10 lakh in the beginning in a liquid fund, which will be borrowed from Jeyanth’s father at a nominal interest to support them to commit to systematic investments. Jeyanth agreed to return this money to his father, once they were confident of funding the investment without any break.

6.      As an alternative plan, they were also advised to maintain the credit history intact, if they need to opt for an education loan for any shortfall in the next five years as there could be an unexpected increase in the costs and other expenses.

For comprehensive financial planning, it is extremely important to cover all aspects related to funding a high-priority goal. One needs to understand that the situations faced by a family may not be similar to someone else’s. The challenges that this couple need to factor in, may not be common to other families, hence it will not do to follow the same strategy.  As we have always maintained, personal finance is more personal than financial!

The author is a SEBI Registered Investment Adviser (