A Case Study: Building a Corpus of 2 Crore in 12 Years for Child's Education

Tanish Goswami - Feb 27, 2024

Introduction:

Parents often aspire to provide the best education for their children, which can come with a hefty price tag. Saving for a child's education requires careful planning and disciplined saving over an extended period. In this case study, we examine the journey of a couple, Mr. and Mrs. Gupta, who aimed to build a corpus of 2 crore INR over 12 years to fund their child's higher education.

Background:

Mr. and Mrs. Gupta, both are working professionals with a collective annual income of 21 lakhs, had a clear vision of providing their child with quality education, including higher studies abroad if desired. They estimated the cost of their child's education, factoring in inflation and potential exchange rate fluctuations, to be around 2 crore INR by the time their child reached college age. This case study delves into the challenges faced by them in effectively investing their income. The case explores various factors influencing investment decisions, risk tolerance, financial goals, and strategies to overcome investment hurdles.

Objectives:

To accumulate a corpus of 2 crore INR within 12 years.
To accumulate the corpus of 2 crore in 12 years with an average CAGR of 15% they will have to invest 52k monthly in a SIP.
To ensure the corpus is inflation-adjusted and capable of covering potential education expenses, including higher studies abroad.

Challenges Faced:

Limited Investment Knowledge: Mr. & Mrs. Gupta lacks comprehensive knowledge of investment options, leading to confusion and indecision.
Risk Aversion: Fear of losing money and uncertainty about market volatility makes them hesitant to invest in higher-risk instruments.
Budgeting and Expense Management: They analyzed their current expenses such as Home Loan EMI, Insurance Premium, Tuition fees of a child and other monthly expenses of 65K to identify areas where they could cut back and redirect funds towards education savings.
Time Constraints: Balancing a demanding career and personal life leaves them with limited time to research and manage investments effectively.
Inflation Concerns: They are also worried about inflation eroding the value of his savings over time, necessitating investments with higher returns.

Investocafe helped Mr. & Mrs. Gupta to overcome these challenges by strategizing their investment planning to help them attain their goal within the time frame in a hassle-free manner. Investocafe's Advisor served as a trusted partner and resource for Gupta's, offering professional expertise, objective advice, and ongoing support to navigate the complexities of investing and achieve financial success.

Here are some strategies laid by the Investocafe for the portfolio management of Mr. & Mrs. Gupta.

Strategy:

Setting Clear Goals: The Gupta's defined a specific target amount and timeframe for their savings plan, considering inflation and potential currency fluctuations for foreign education.
Investment Diversification: The Gupta's diversified their investment portfolio to balance risk and return. They allocated funds across various asset classes such as equity, debt, mutual funds, and fixed deposits.
Systematic Investment Plan (SIP): They opted for a SIP approach, investing a fixed amount regularly in mutual funds. This ensured disciplined savings and benefited from rupee cost averaging.
Tax-Efficient Investments: Considering tax-saving investment options such as Equity Linked Savings Schemes (ELSS), Public Provident Fund (PPF), or National Pension System (NPS) can help Gupta's optimize their tax liabilities while simultaneously building wealth.
Long-term Investment Horizon: Recognizing the long-term nature of their goal, the Gupta's adopted a patient approach, avoiding impulsive decisions based on short-term market fluctuations.
Continuous Monitoring and Rebalancing: The advisor will monitor the performance of Mr. & Mrs. Gupta investment portfolio regularly, tracking market trends, economic indicators, and individual asset performance. If necessary, the advisor will rebalance the portfolio by adjusting asset allocations to maintain alignment with their financial objectives and risk tolerance.
Behavioral Coaching: During periods of market volatility or emotional decision-making, the investment advisor provides behavioral coaching to help Gupta's stay disciplined and focused on his long-term investment objectives. This guidance prevents impulsive actions that may undermine investment performance and jeopardize financial goals.

Execution:

Initial Assessment: The Gupta's consulted with financial advisors to assess their current financial situation, risk tolerance, and investment goals.
Setting up Investments: They opened investment accounts and set up SIPs in mutual funds based on their risk profile and investment horizon.
Regular Monitoring: The Gupta's monitored their investment portfolio regularly, tracking performance and making adjustments as needed.
Increasing Contributions: As their income grew over the years, they increased their monthly SIP contributions to accelerate corpus growth.
Tax Planning: They leveraged tax-saving investment options such as ELSS (Equity Linked Savings Scheme) to optimize their tax liabilities and maximize savings.

Results:

After 12 years of disciplined saving and investment, the Gupta's successfully built a corpus of 2 crore INR, surpassing their initial target. The diversified investment portfolio performed well, overcoming market fluctuations and inflationary pressures.

Conclusion:

Through meticulous planning, disciplined saving, and prudent investment, the Gupta's achieved their goal of building a corpus of 2 crore INR for their child's education. Their journey underscores the importance of setting clear goals, disciplined savings, and long-term investment strategies in achieving financial milestones. This case study serves as a roadmap for parents aspiring to secure their children's future through education savings.

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