Kids have reached 13 and 11 years and I have not yet planned for their college education
Raju Varghese own a Mini Super Market in Chennai and is aged 43 years. His wife is a home maker. His first son is 13 years old. He also has twin boys aged 11 years each. He expects to spend about Rs.15 lakhs in today’s value towards the college education of each of the boys. He savings is mostly deposited in banks. He has chits as well as a few insurance policies. He has not yet set aside anything for his children’s college education. Recently a life insurance agent was behind him to sell some child policy. He can save about Rs.24000 towards this goal. He was not confident if the life insurance policy can help him achieve this.
Raju’s situation was analysed and showed him strategies and advice to achieve his goal as given below:
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Requirement |
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Elder Son |
Younger Twins |
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Cost of Higher Education in today's Value |
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₹ 5,00,000 |
₹ 10,00,000 |
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Cost after 4 years & 6 years assuming price change @ 8% p.a. |
₹ 6,80,244 |
₹ 15,86,874 |
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Resources Available |
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Assets set aside for the goal in today's value |
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NIL |
NIL |
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Monthly Savings that can be allocated to this goal |
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₹ 12,143 |
₹ 11,857 |
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Suggested Asset Allocation |
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Assuming Conservative Risk Tolerance and Short time horizon the following asset allocation is suggested to deploy the assets allocated for the goal and to allocate the savings
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Rate of Return expected annually from the suggested asset allocation |
10.40% |
10.40% |
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Analysis |
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Value of Assets set aside for the goals after 4 years & 6 years |
₹ 0 |
₹ 0 |
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Value of Savings allocated for the goal after 4 years & 6 years |
₹ 6,80,259 |
₹ 11,08,948 |
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Total resources available at the time of goal |
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₹ 6,80,259 |
₹ 11,08,948 |
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Shortage at the time of goal |
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NIL |
₹ 4,77,926 |
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Strategies |
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1 |
Take education loan for the amount equal to the shortage at the time of higher education of |
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the twins. Assuming loan interest rate of 11.5%p.a for 7 year period the EMI will be Rs.8309 |
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2 |
Or increase the monthly savings towards
the higher education of twins by Rs.5110 |
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Or allocate assets worth about Rs.2.64 lacs towards the higher education of the twin
St
Where to Invest?
1. Out of the Rs. 12150 monthly savings towards elder son's higher education, start SIP of Rs.2430 in diversified equity fund, SIP of Rs.3645 in a dynamic bond fund and Rs.6075 in bank RD account 2. Out of the Rs. 11850 monthly savings towards younger twin's higher education, start SIP of Rs.2370 in diversified equity fund, SIP of Rs.3550 in a dynamic bond fund and Rs.5930 in bank RD account 3. If you opt to additionally save or invest as per the strategies 2 & 3 then allocate that in above ratio |
The above case study is for illustrative purpose only and is not a recommendation or advice for a similar situation you might face since there are many other factors which will require a different approach to your situation.
PrognoAdvisor, the leading Online Financial Planning company, can help you solve your financial concerns and issues through its well-defined analysis and planning process.
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