Money is a means to achieve our dreams- be it for ourselves or for our loved ones. In our list of priorities, usually for the ones with kids- children’s education tops the list. Most of us in India want to send our kids to foreign universities for the best education and to the universities of their choice. This can be the single biggest investment one makes in his/her lifetime apart from the goal of accumulating for one’s retirement.
The first thing to put down is how much would you want to invest/ spend on his/her education because identifying the country 15-20 years before the goal can be quite redundant. Say, if you wanted to spend 20 lakhs in today’s value – this would be equivalent to close to 85 lakhs after 15 years if you assume an inflation of 10%. The first thing to do is to predict the goal and you need to predict it in future terms and not just in today’s value because the idea is that goal is met at all costs. The second thing to take care of is that the investment must be done regularly. This is easier said than done. One must start investing as early as he can, the power of compounding can actually lower your burden of investing. When one is planning to send the kids abroad to study, there are a few things additionally that parents should take care of:
1. The amount of corpus: The amount required for sending the child abroad for studying is anywhere between 10 to 15 times the cost of education in India. The cost varies with what university is being looked at and what countries are being considered. For eg: Education in Singapore might be cheaper than one in the US.
2. Tuition/ Boarding/ All: You will need to think about what part of this funding will be done by you, what part of it would be a loan and what kind of scholarship you should look at to ensure that the other important goals are not impacted negatively. You must be upfront with your child on this front to ensure expectations are set realistically.
3. Currency: Because one is unsure of which country the money will be required in, one of the options is to invest in a fund that is globally diversified. This way you protect the portfolio by diversifying it across various countries and currencies. The investment must be done systematically though. In the past few years we have seen that currency has swung quite sharply and hence has a greater impact than inflation.
4. Inflation: Though inflation is lower in developed countries than in the developing ones, the education inflation is still quite high and we would assume a 10% inflation realistically. Another factor to consider is change in rules -- protectionism may result in having more seats for local students, thus pushing up costs for international students.
5. Investments: The investment portfolio for a goal like this should be diversified to include multiple countries and currencies whilst at the same time cushioning against risks. The portfolio should be re-examined from time to time to ensure movement to safer assets as the goal comes closer. We normally recommend a mix of Indian equities, debt and investing in international funds for these goals.
6. Expenses on travel: Since now they are living in another country, the travel expenses might shoot up if you are traveling to be there or if they are visiting you. The number of visits every year could be pre-set too to fit the budget. It is also a possibility that they would want to explore the country they are living in and hence that may be another added expense although not a necessity. -
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The first thing to put down is how much would you want to invest/ spend on his/her education because identifying the country 15-20 years before the goal can be quite redundant. Say, if you wanted to spend 20 lakhs in today’s value – this would be equivalent to close to 85 lakhs after 15 years if you assume an inflation of 10%. The first thing to do is to predict the goal and you need to predict it in future terms and not just in today’s value because the idea is that goal is met at all costs. The second thing to take care of is that the investment must be done regularly. This is easier said than done. One must start investing as early as he can, the power of compounding can actually lower your burden of investing. When one is planning to send the kids abroad to study, there are a few things additionally that parents should take care of:
1. The amount of corpus: The amount required for sending the child abroad for studying is anywhere between 10 to 15 times the cost of education in India. The cost varies with what university is being looked at and what countries are being considered. For eg: Education in Singapore might be cheaper than one in the US.
2. Tuition/ Boarding/ All: You will need to think about what part of this funding will be done by you, what part of it would be a loan and what kind of scholarship you should look at to ensure that the other important goals are not impacted negatively. You must be upfront with your child on this front to ensure expectations are set realistically.
3. Currency: Because one is unsure of which country the money will be required in, one of the options is to invest in a fund that is globally diversified. This way you protect the portfolio by diversifying it across various countries and currencies. The investment must be done systematically though. In the past few years we have seen that currency has swung quite sharply and hence has a greater impact than inflation.
4. Inflation: Though inflation is lower in developed countries than in the developing ones, the education inflation is still quite high and we would assume a 10% inflation realistically. Another factor to consider is change in rules -- protectionism may result in having more seats for local students, thus pushing up costs for international students.
5. Investments: The investment portfolio for a goal like this should be diversified to include multiple countries and currencies whilst at the same time cushioning against risks. The portfolio should be re-examined from time to time to ensure movement to safer assets as the goal comes closer. We normally recommend a mix of Indian equities, debt and investing in international funds for these goals.
6. Expenses on travel: Since now they are living in another country, the travel expenses might shoot up if you are traveling to be there or if they are visiting you. The number of visits every year could be pre-set too to fit the budget. It is also a possibility that they would want to explore the country they are living in and hence that may be another added expense although not a necessity. -
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