E book-Swaraj-Wealth

An e-book that can help you plan for your
Child's Higher Education
Written By
Ajay Kumar Jain, CMD
Swaraj Wealth Management Pvt Ltd

How to become S.M.A.R.T. PARENT ?
SWARAJ WEALTH
Y o u r I n v e s t m e n t F r i e n d
I believe you have given the best to your child up ll now. You are the best
parent ever. Your child feels you are the best Papa in the world. The child always talks
about My Papa, My Mamma with a mix of pride and sa sfac on. The me had passed
when your parents and even socio‐environment had no or very fewer aspira ons from
you. They only wanted you to be a decent earner, whatever the way it may be.
Whatever you are today was not demanded from parents or society. Many things may
have happened in a usual way.
Today me has changed. Mr. Arun, a big business man of the town, talked
about his aspira on for two daughters in this way, “I wish my daughters to study at
Harvard or Cambridge. The reason is very much clear that a er ge ng out of Harvard
or Cambridge they will be competent enough to understand about the future objec ve.
Then even if they ask to marry, I will say ok, go‐ahead”. Everyone has right to aspire as
he wishes. He put all the data in front of me as for how much and when he will need at
the me when daughters will go abroad, including Educa onal, living and traveling
expenses.
1
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SMART Educa on Planning
In fact, every financial goal should be S.M.A.R.T.
SWARAJ WEALTH
S Specific (Well defined),
M Measurable (Know if the goal is obtainable and how far away comple on is),
A Achievable (Not an imaginary tale),
R Realis c (Within the availability of resources, knowledge and me) and
T Time‐bound (Enough me to achieve the goal).
2
Se ng Smart Goals in
life surely leads you to smart results…
In the case of Mr. Arun, the purpose of sending daughters abroad fulfils all
the parameters of being SMART. Apart from these goals, I helped him to measure and
plan other life goals like se ng up a big Hospital, daughter's marriage, etc. Everyone
can achieve his financial goals in his life with the best planning in place. Only a sound
financial planner can convert a financial goal into an S.M.A.R.T. Financial goal.
Make Sure Goals Are
Specific
Measurable
Achievable
Realis c
Time ‐ Bound
S.M.A.R.T.
S
M
A
R
T
S.M.A.R.T. Resultant
Success
Momentum
A tude
Reality
Trust

SWARAJ WEALTH
3
Some people unknowingly or reluctantly set a goal for their child's higher
educa on which doesn't qualify for being S.M.A.R.T. in other words they don't know
what financial goal is. Mr. Vivek rang me up one early morning to come to him and
make plans for his son to go abroad to study MS from the US. He and his wife were in
a dilemma since long whether their aspira on about their son was achievable or not.
His son was in the 1st standard that me. He belongs to middle‐income group family.
For a person like him with many other responsibili es, the financial goal was Specific,
Measurable, and Time‐bound but not Achievable and Realis c. The reason was very
clear. His income didn't match with monthly investment need to achieve the goal.
Should he drop the aspira on and think twice? He can't delay the ming of the goal
and don't want to compromise the size of aspira on. The only thing that can be
planned was to increase his family's disposable income which was en rely possible. So
he decided to switch the job with higher remunera on and his wife also decided to go
on the job as per her qualifica on and the income was doubled in no me. Now with
best financial planning, the goal was converted into SMART.
Again the ques on comes, are you the S.M.A.R.T. parent ever? Have you ever
calculated the up shoo ng educa on costs every year? Have you considered Educa on
Infla on while planning for your Child's Higher Educa on? Have you tested your child's
educa on goal on parameters of being S.M.A.R.T?

Everyone has right to wish. Every desire has a cost a ached to it. The cost of
goal has to be borne by the Desire only. That cost can be any amount depending upon
magnitude and distance of me to fulfil the desire. It is less if the goal is very near in
terms of me or cost and it will get wings of infla on if the me distances increases.
Infla on is directly propor onate to me. It gets on mul plied exponen ally.
Compounding effect will be evident if you calculate effec ve Infla on. If I say, the cost
of educa on increases every year @ 10% per year compounding means the cost of
infla on of Educa on in India is 10%. For example, if the cost of 2 years MBA course at
IIM Ahmadabad was Rs 2lac in the year 2002, and today it is Rs 20 Lac. Then the rate
of infla on of educa on cost at IIM A comes to be 16.5% per year compounding.
Means 15 years back at least 20 students were able to study for Rs 20 Lacs, and today
Rs 20 Lacs is not enough to educate a single student at IIM‐A. In other words value of
money has devaluated in last 15 years. So if you are looking for your 3year old son to
go for MBA at IIM‐A 15 years from now, be ready for ten mes cost. This is not to
make you worry but to help you plan for the best.
SWARAJ WEALTH
Desire is important
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SWARAJ WEALTH
It is a well‐known fact that equity investment is always done for a period more than
5 years of me. Anywhere in less than 5 years there is a risk on loosing on capital.
Mr Avinash's wife approached me to suggest her husband a good SIP for her
3 year old Daughter's higher educa on. A er visi ng their financial planning Avinash
was shocked to know that he would have to invest at least Rs 11000 per month as SIP.
Although his earnings were as small as Rs 25000 per month. He was under pressure of
aspira on and financial crunch at the same me. I simply suggested him to prepare a
monthly balance sheet. There he came to know what he owns and what he owes. With
a fair rebalancing of expenses and income in the balance sheet, he was hardly able to
invest Rs7000 per month, with a promise of addi onal 10% of SIP amount contribu on
as Top up SIP every year.
“Dear Sir, it is too late to plan it aggressively because me horizon is very less
say three years only. So I can't suggest you any equity oriented scheme aggressively.
You have to compromise on lesser returns generated by Debt Funds only or Bank FDs
and RD. That way Monthly regular contribu on amount will be very high which I don't
know whether you can afford or not. Here you should know those bank investments,
whether FD or Rd are taxable and usually give a very lesser return. My sugges on for
you is to both start SIP and invest Lump sum money in good Debt Mutual Funds as
recommended, with your best possible amount and let it accumulate through this
period. Rest of the amount will have to be arranged from different sources like
Educa on Loan or private loan, which I scarcely suggest”. Why I suggested a SIP in
Debt fund was because if he bets on equity, equal chances are there he may lose some
of his principal also in this short period.
Once I received a ques on from a client, “Dear Sir, My son is in 10th Standard.
He is quite intelligent. He is willing to study Astrophysics from a reputed Ins tute of
USA. Kindly suggest the best plan. Where should I invest as one me and regular basis
to get maximum returns?” In reply, I had to show him a mirror.
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SWARAJ WEALTH
Seven steps to plan child's higher educa on
STEP 1
STEP 2
STEP 3
STEP 4
STEP 5
STEP 6
STEP 7
Compare the child's higher educa on Goal at all
Parameters of being S.M.A.R.T.
Quan fy rightly
(a) Amount‐ Nearest Inflated Future Cost
(b) Time distance‐ Decide the exact year when
your child will go to Higher Educa on.
Invest in right asset class mix‐ different asset class
mix is recommended for various me horizons.
Start Early ‐ Early Bird catches the worm.
Invest regularly‐ adopt the route of SIP with the
top up the facility and Lump sum both in
Mutual Funds.
Revisit the plan at regular intervals or whenever
there is a subsequent change in your financial
life ‐ it is of utmost importance otherwise all
exercise go fu le.
Follow all above religiously.
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SWARAJ WEALTH
Quan fy the Goal
In Terms of Money: First of all one should know cost of his Financial Goal, Child's
Higher Educa on in this case. While doing research about the goal, he should not leave
any stone unturned. It would always be be er if he can draw a clearer picture of what
he would require if so ever his child has to go for the best Higher Educa on today. You
need to do every possible exercise of cost calcula on today itself as there is no
tomorrow.
In Terms of Time: Time plays a vital role while deciding the future cost of any financial
goal. Time is the only factor which can control Rate of return. Longer the me available
to achieve the goal, lesser the amount you will require to invest ini ally. This has been
proved with so many examples. Following Table show impact of rate of interest in a
fixed me horizon. As the rate of interest per year compounding increases for a fixed
me period, the end usable amount increases.
Future Value Calcula on (growing)
Compounding Rate – Ann 8.00% 10.00% 12.00% 15.00%
Present Value Rs. 1,000,000 1,000,000 1,000,000 1,000,000
Total years of Investment 15 15 15 15
Future value A er 15 Years Rs. 3,172,169 4,177,248 5,473,566 8,137,062
In the table below it is apparent that with increasing me horizon and with a
constant rate of per year compounding interest, the money gets mul ply exponen ally.
7

SWARAJ WEALTH
Present Value Rs. 1,000,000 1,000,000 1,000,000 1,000,000
A er years of Investment 5 10 15 20
Future value Rs. 2,011,357 4,045,558 8,137,062 16,366,537
Note: In the above examples it is mandatory to note that investment was done in
mutual fund schemes which have a record of consistent performance of approximately
15% CAGR. It is just for example.
Once you quan fy the cost and me, you can calculate future cost of the goal.
The last table depicts that if the cost of MBA from IIM A for the first year is
Rs 1000000.00 today, and at the infla on rate of 15% per year compounding, the
future cost a er 20 years from here will be Rs 16366537.00. And for total 2 years
course = Rs 16366537.00*2 =Rs 32733074.00
Now you are ready with the data. If you aspire your son to go to IIM A for
MBA a er 20 years, be ready with Rs 32733074.00 or take an educa on loan or forget
the aspira on.
Invest in right asset class mix ‐ Inves ng in right asset class mix is as important as
taking right medicine for the well‐defined disease. When you approach a doctor for the
medicine, he does an inves ga on and then writes a different kind of medicine with a
suitable mix of salts. And prescrip on of one pa ent doesn't necessarily resemble with
the others'. Exact the same way every investment need has different asset class mix.
Planning for one child's higher educa on may not mirror to that of another child. To
come to an ideal planning first, we should understand about asset classes and their mix.
8

SWARAJ WEALTH
To plan for a child's Higher Educa on, a mix of Equity, Debt, and Cash is an
ideal combina on. Longer the horizon you have, more equity propor on can be
prescribed in planning.
Child Higher Educa on
Equity
Cash Debt
Here is a basic guideline you can use to decide the right scheme for your
child's higher educa on planning.
Asset Class
There are ﬁve diﬀerent asset classes
which are most popular.
1
REAL
ESTATE
2
EQUITY
3
FIXED
INCOME
INSTRUMENT
(DEBT)
4
PRECIOUS
METALS
5
CASH
9

SWARAJ WEALTH
Divide the financial goal in terms of me
1. Very Long Term
More than ten years to go for higher educa on. For this period a Mutual Fund
Scheme with around 75% equity holding can be recommended. Aggressive
You can see here that 100% equity schemes are never suggested for Child's
Higher Educa on Planning. There is no need to be a very aggressive investor because
this goal is very Specific, Measured, Achievable, and Realis c and Time Bound. A child's
Higher Educa on is very much predefined. It cannot be postponed in any
circumstances. It is a ques on of a aining a life me goal.
Very rarely asset alloca on pa ern can be customized as per the risk appe te
of the investor. We have thought‐out a very specific strategy for the people who carry
a big bally for taking risk and reward. This strategy is termed as Core & Satellite with
punch of Liquid fund. Core Funds will take you towards the goal and Satellite funds will
boost up the power of Core fund and to gather plinth the goal. Punch of Liquid fund
will help you in many ways in this por olio strategy. It will help you create a liquid
corpus for any exigency. Exigency may be anything from urgent to important. This is
fully customizable strategy. This is not “Fill it‐Shut it ‐ Forget it” Strategy. It has to be
designed on one to one basis. To get it please feel free to call us at 9993025625 or
visit www.swarajwealth.com
4. Very Short Term
1‐3 years to go for higher educa on. For this period a Mutual Fund Scheme
with around 0% Equity holding can be recommended. Very Conserva ve
2. Medium Term
5‐10 Years to go for higher educa on. For this period a Mutual Fund Scheme
with around 50% equity holding can be recommended. Moderate
3. Short Term
3‐5 Years to go for higher educa on. For this period a Mutual Fund Scheme
with around 25% Equity holding can be recommended. Conserva ve
ecommended. Very Conserva ve
We are lucky enough that we are living in India where different combina ons
of asset mixes are available. A dedicated fund manager is there to manage this asset
mix. They call it Hybrid Fund or Balanced Fund. It may be equity oriented (where
equity propor on is more than 65%) or debt oriented (where equity ra o is not more
than 65%) One crucial thing to note is that as the name Balanced Fund suggests that
the fund manager helps you to balance the asset mix.
10

SWARAJ WEALTH
Recently another asset class is being introduced to balance the por olio
which is Hedged Equity. Hedged equity is an asset class which gives returns equivalent
to debt, but as per regula on, it has the benefit of sec on 10(38) of ITA. So if the
Returns From your Asset Mix ‐ Would it be good if you get returns like a roller‐coaster.
Highly vola le! That way you need to sit in front of the TV to watch the vola lity of the
markets. It's like si ng on the driver's seat and unable to sleep the whole night. Every
me you awaken if at the me of your goal achievement your investment roller
coaster is not on the downfall. So chances of mee ng an accident are very high.
Wouldn't it be be er that instead of driving the car on Roller Coaster Road,
you tend to hand over the driving seat to an expert driver and sleep at rest? The expert
knows be er how to drive it. The fund manager of any mutual fund scheme is believed
to be a be er driver.
Early Bird catches the worm. The right me to plan for higher educa on starts
as a child takes birth. Many mes financial condi ons don't permit or may be by
ignorance or unknowingly most of the parents were not able to plan it. It is very much
evident from so many instances that winner will be only he who started early. The chart
below clearly depicts that if Mr. Ramesh invested Rs 1000000.00 just five years back
would be able to reap only Rs 2011357.00 whereas Mr. Suresh had invested the same
amount 20 years back and he can make Rs 16366537.00 out of it. Certainly, Mr. Suresh
took the benefit of an early bird.
Start Early
Present Value Rs. 1,000,000 1,000,000 1,000,000 1,000,000
Total years of Investment 15 15 15 15
Future value A er 15 Years Rs. 3,172,169 4,177,248 5,473,566 8,137,062
Due to market condi ons, if the balance of asset mixes changes, the fund
manager has to rebalance it at regular intervals. This way he can book profits from
both asset classes.
11

SWARAJ WEALTH
Cost of Delay
Just delaying the decision of doing a SIP of Rs 10000 per month, genera ng
@ 15% CAGR return for 12 months only will cost you Rs 916600.00. Your End
Investment Value, if you had started MF SIP today …Rs 6,163,656.Your End Investment
Value, if you delay your SIP decision just by 12 months…5,247,056.The cost of delay is
Rs 916,600. If you delay your investment by 12 months, you stand to lose Rs. 916600/‐
in the end value of Child's Higher Educa on Goal.
Procras na on is only route cause for this loss due to a delayed decision.
You may delay, but me
will not, and lost me is
never found again.
“The really happy people are those
who have broken the chains of
procras na on, those who ﬁnd
sa sfac on in doing the job at hand.
They're full of eagerness, zest, and
produc vity. You can be, too.”
“Procras na on is the bad
habit of pu ng oﬀ un l the
day a er tomorrow what
should have been done the
day before yesterday.”
— Benjamin Franklin
– Napoleon Hill
– Norman Vincent Peale
12

SWARAJ WEALTH
Invest Regularly
SIP (Systema c Investment Plan) is a gi for serious investors. A SIP lives the
thought of Compounding Interest which Albert Einstein declared as the 8th wonder of
the world. In the long run, a SIP is capable of genera ng consistent returns thus
crea ng wealth for all financial goals.
Cessa on of SIP in a mid‐way will cost a lot
People get tempted or harassed due to vola le returns generated by a SIP in
any equity oriented Mutual Fund Scheme and intend to cease it in a mid‐way. That
proves to be a fatal way to the investment goal. If so ever a SIP is con nued un l the
end of the period, the result remains miraculous.
In the below chart if somebody had started a SIP for ten years, his term value
of an investment will be Rs 2,630,182, and if he discon nued it a er 5th year, he would
be le with Rs 873,421 only.
Execu on and revisi ng the plan
Once child's Educa on plan is ready, execute it immediately without
procras na on. Revisit the plan is most important a er execu on. Whenever there is
a change in the financial life of a person, like the birth of another child or promo on
or any loss of a job or anything other than this, he should immediately call the financial
planner. Revisit the plan. Reset and reassess the goal if needed. Even as the goal
maturity me is nearing, he may need to change the alloca on pa ern of asset classes.
10%
Expected End Value of your Investment For A Monthly Investment (SIP) of Rs.10000/‐
Number of Years of Investments
5 10 15 20 25 30
771,717 2,014,576 4,016,212 7,239,867 12,431,596 20,792,927
12%
15%
20%
811,036
873,421
987,040
2,240,359
2,630,182
3,443,110
4,759,314
6,163,656
9,554,599
9,198,574
13,270,734
24,761,940
17,022,066
27,565,608
62,602,670
30,809,732
56,317,704
156,762,515
Exp.
Returns
13

SWARAJ WEALTH
The Extra Degree
Are you looking to make that extra step forward that's going to make you
accomplish your dreams?? Yes! Only one extra effort is needed. Water boils at 211
degrees temperature, and the just extra 1‐degree addi on of temperature to it
converts boiling water to steam, and this steam can do a miracle. This steam has now
power to pull or push thousands of tons heavy locomo ves or a steamer. The same
way one has to change the a tude just 1 degree, and it will change the rules of the
game and change the focal point. Just 1 degree more, and the target is yours. With just
1 degree extra effort a Gold Medalist Runner has been able to beat silver medalist by
just .87 seconds, and the winner was able to pocket 6 million dollars extra as prize
money.
Here is a table below you can see how 1 percent change of compound
interest is going to change the rule of the game in life. Just imagine a newly born child
is there in your home. You certainly know the present cost of Higher Educa on is
Minimum Rs 1,000,000.00 today, and you will need a big chunk when he or she
actually will to go for it. In the table below just see how the different rate of per year
compounding interest rate impact the final value a er 18 years.
14

SWARAJ WEALTH
1000000 4 2025816.52 1025816.5
1000000 5 2406619.23 1406619.2
1000000 6 2854339.15 1854339.2
1000000 7 3379932.28 2379932.3
1000000 8 3996019.5 2996019.5
1000000 9 4717120.42 3717120.4
1000000 10 5559917.31 4559917.3
1000000 11 6543552.91 5543552.9
1000000 12 7689965.8 6689965.8
1000000 13 9024267.97 8024268
1000000 14 10575169.2 9575169.2
1000000 15 12375453.6 11375454
1000000 16 14462514.5 13462514
1000000 17 16878953.3 15878953
1000000 18 19673250.9 18673251
Present
value
(A)
Rate of
Compound
Interest
Per Year
(B)
Final
Value
a er
18 years
(C)
Net
Proﬁt
(C) ‐ (A)
Present
value
(A)
Final
Value
a er
18 years
(C)
15

SWARAJ WEALTH
In present day most of Savings Accounts with Public Sector Banks give 4% rate
of compound interest if money lies there for more than one year. If by ignorance or by
will Mr. Amit keeps Rs 1000000.00 into his savings account for his daughter's higher
educa on ll she turns 18, certainly his money will fetch another Rs 1025816.52.
Mr. Ashutosh was smarter, and he planned this saving with some private sector bank
and was able to bargain at 6%. This 6% of compound interest put him at the difference
of Rs 1406619.23 only. When he calculated the real rate of return, a er deduc ng
Infla on and taxa on, he lost the ground. The amount he achieves was altogether
nega ve.
This is the story most of us find in real life. We don't understand the impact
of Infla on and taxa on on our investment. We are innocent enough not able to
calculate compounding impact both dreadful elements of finance ‐ Infla on and
taxa on.
Silver line in the clouds
Children's Funds
HDFC Children's Gi Fund‐
Investment Plan
(Equity Oriented)
HDFC Children's Gi Fund‐
Savings Plan
(Debt Oriented)
ICICI Pruden al Child Care Plan‐
Gi Plan (
Equity Oriented)
ICICI Pruden al Child Care Plan‐
Study Plan
(Debt Oriented)
Incep on Date
2‐Mar‐2001
2‐Mar‐2001
31‐Aug‐2001
31‐Aug‐2001
5 yr CAGR
16.95%
As on 07/04/2017
11.22%
As on 07/04/2017
17.33%
As on 07/04/2017
15.35%
As on 07/04/2017
10 yr CAGR
15.51%
As on 07/04/2017
11.21%
As on 07/04/2017
12.41%
As on 07/04/2017
12.63%
As on 07/04/2017
16

SWARAJ WEALTH
You can beat Infla on and taxa on. Just beat compounding impact of these
two with compounding rate of Return and Tax Efficiency. Some of the Children Funds
(Name of schemes may be like – Child Care Plan, Children's Gi Fund, Bal Vikas Yojana,
etc.) from Mutual Funds provide booster power to your investment planning. They
have a most appropriate mix of asset classes i.e. every me they maintain more than
65% of its investment in Equity thus able to the benefit of Sec on 10(38) ITA. Means
any me a er 365 days of investment profits from such schemes will be 100% tax‐free.
At the same me, over long periods such schemes have been able to generate returns
over and above of infla on; which is the need of the day.
I hope this ebook has dissipated many myths related to the savings for Child
Educa on. I do hope that you are mo vated to plan for future right now with
determined efforts.
Want to know more and understand how you can save given your financial
scenario?
Get in touch :
Contact :
Email :
Address :
Facebook :
Child's Higher Education
Written By
Ajay Kumar Jain, CMD
Swaraj Wealth Management Pvt Ltd
9993025625
swarajwealth@gmail.com
rd
3 Floor, Shri Ram Tower, Ekta Chowk, MR‐4, Jabalpur
18

E book-Swaraj-Wealth

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