Spend, Save and Invest Smartly
Dreams Dreams Dreams…Your child must study abroad. He must get the best education. He must earn in Dollars. This is the dream of every parent in India. But dreams cost money. Studying abroad does not come cheap.
If you plan to send your child to study in the US, Canada or Australia it can be very costly. Tuition fees for a good college must be paid in Dollars, be it the US Dollar, Canadian Dollar or the Aussie Dollar.You will have to bear living and staying expenses, transportation costs (Travelling abroad can be very costly), emergency medical expenses, Insurance costs and even the costs of books. You need to find out, how much it will cost you, to send your child to study abroad. You have to account for inflation. Costs increase every year. You have to plan for inflation while investing money for your child’s education abroad.You need to invest when your child is very young (say 3-5 years), to collect the money necessary for the child to study abroad. If you are a risk taker in your investments (willing to take risks to get a higher return), then you must invest in equities.Investment in equities can be equity mutual funds or even stocks. An investment in equity, can give you returns as high as 12% a year.Your money will grow each year and accumulate .You will have quite a huge sum when your child is 20 years of age, as you have invested for 14-16 years. You can invest in an SIP of a good equity mutual fund. Your income increases each year. You can easily increase the money; you are investing in the SIP, as your salary increases.Investing in an SIP of an equity mutual scheme, also gives you the benefit of compounding. You need to invest a part of your money in a PPF. This is an extremely safe mode of investment (has EEE benefits), and your money is safe.
As you know, the value of 1 US Dollar in September 2014 was INR 61. The current value of 1 US Dollar is around INR 66.The Rupee has depreciated (lost value), by 8% against the dollar in just one year. This means you have to pay 8% more, just because the Rupee has lost value against the Dollar. You need to maintain a buffer of at least a couple of lakhs, to make up for the fall in the value of the rupee vs US Dollar.Of course, you would profit if the rupee gains against the US Dollar. Your child’s expenses of living abroad would come down. However it is wise to hope for the best, but prepare for the worst.
You can also borrow money from close relatives and friends. This will help you save on interest as your relatives/friends would ask for the money back, without interest.
Banks may sanction your child an education loan up to INR 20 Lakhs. The time for repayment is also quite long. The interest rates are also quite reasonable. If you have a relative in a foreign country say Canada, he could stand a guarantor for the loan. This will help you get the education loan at a lesser rate of interest.
You need to plan which country you want to send your child to study. Is it USA, Canada, Australia or New Zealand? You then need to invest your money in the country; you plan to send your child to study. If you are a risk taker you must invest your money in the equity markets of the country, you want to send your child to study. You then divide the money which you plan to invest in the equity markets into two parts. You invest one half of the amount in the Indian stock markets. The remaining amount is invested in the stock markets of the country; you want to send your child to study. You need to have a rough idea of what the cost of education is in that country; at the time your child has to get into college. You also need to know what would be the rate of inflation in that country. You also need to study the movement of currencies, Indian rupee vs the currency of the country, you plan to send your child to study. If it is USA , you must study the movements of the US Dollar vs Indian Rupee. If it is the UK, study the movements of the Sterling Pound vs Indian Rupee. If it is Germany, study the movements of the Euro vs Indian Rupee. There is no substitute for planning. Plan early… Invest when your child is very young and fulfill yours and his dream of studying abroad.