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A financial plan on

Childrens education
and retirement
Level -2

Overview
Retirement takes priority
Your child can always attend college by taking out loans
(or) maybe even with scholarships, but there's no such
thing as a retirement loan!
If possible, save for your retirement and your child's college
at the same time.
Invest more aggressively:
If you have several years until retirement or college, you
might be able to earn more money by investing more
aggressively.

Given Information
Income - 10L per annum
Expenditure - 4L per annum
Provident fund: Employers contribution - 10,000 P.A
Provident fund: Employees contribution - 10,000 P.A
LIC Policies maturing in 2028
(Maturity Value: INR 7,50,000)

The client has 2 children (3 years old , 6 years old)

Know what your financial


needsare
For retirement:
How many years until you retire?
Does your company offer an employer-sponsored
retirement plan or a pension plan?
How much do you expect to receive in Social Security
benefits?
What standard of living do you hope to have in
retirement?

Know what your financial


needsare
For college:
How many years until your child starts college?
Will your child attend a public or private college? What's
the expected cost?
Do you have more than one child whom you'll be saving for?
Does your child have any special academic, athletic, or
artistic skills that could lead to a scholarship?

Equity Mutual Funds


Two reasons for this:
Longer time frame (10-15 years)
the mode of investment available (SIP)

For example, a monthly SIP of Rs 5,000 in equity mutual


funds for 18 years can fetch you Rs 33 lakh, assuming a
return of 12 per cent per annum. Even considering an
inflation of 6 per annum, this amount would more than
suffice.
However, the key here is not the amount invested but the
time given. Power of compounding has always been
understated.

Case 1: When 3 years old child


turns 18
The benefits of an early start cannot be stressed enough
when you are saving for a long-term goal.
If your child is 3-4 years old, you have a good 13-14 years to
save.
Starting early helps you amass larger sums that may not be
possible later in life.
The multiplier effect in the power of compounding comes
from the investing time horizon; longer time horizons have a
higher multiplier effect.

Case 1: When 3 years old child


turns 18
Starting early put lesser burden on your finances because
it requires a smaller outflow.
For instance, if your target is Rs 25 lakh, you need to save
only Rs 5,004 a month if you start now.

Chose debt instruments for short


term needs
Though major needs like higher education and marriage
are long term based, there are many recurring needs in
short to medium term like school fees, uniform expenses,
clothing and medical requirement etc. which cannot be
taken care by investing in equities considering the risk and
volatility in the short term.
One can choose to invest in debt avenues like short term
funds, income funds, bond funds (with lower maturity),
fixed deposit in order to avoid market risk. Though returns
from these short term funds may be in the range of 6 per
cent to 8 per cent, however risk too is low or moderate.

Case 2: When 6 years old child


turns 18
If you wait for six years, you will have to invest Rs 9,195 a
month to reach the target.

Case 3: When he turns 60.


Assume his current age to be
35.

Pensions are the easiest retirement plans because little is


required of you. In the given information, there is
Provident fund available.
Fixed deposits (FDs) are a low risk investment that can
help grow money over time. Investors can choose from bank
FDs or company FDs. Certain FDs also offer tax benefits.
LIC Policies maturing in 2028 to be considered as fixed
deposit for 10 years with 9% interest rate.
Similarly invest in SIP for 12% returns after retirement.

Thank You