Studying abroad is not an uncommon decision in India. Every year, thousands of students try to secure admissions into prestigious foreign universities in hopes of learning new skills, gaining international exposure, and building successful careers. However, studying overseas also presents challenges, including high tuition fees, which needs smart financial planning.
Many families think that setting a target corpus and measuring it against inflation is enough to secure the future of their child. However, there is another hidden aspect that is quietly eating your savings away. Its rupee depreciation against dollar.
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You think that if today Rs 1 crore is enough for a child's education abroad, after 15 years, it would amount to Rs 2.4 crore after adjusted for around 6% inflation. However, over time, the rupee depreciation aspect will also hurt your savings, increasing expenses further.
This is why inflation is only half the challenge. If this scenario was put into an example, here's how it could work:
Assuming education costs rise by 6% annually and the rupee weakens by 4% annually against foreign currencies:
| Scenario | Cost after 15 years |
| Education inflation | Rs 2.4 crore |
| Rupee depreciation | Rs 1.8 crore |
| Both combined | Rs 4.3 crore |
This means that after 15 years, you will effectively need more than Rs 4 crore to fulfill the goal of your child's foreign education.
How To Reach Rs 4.3 Crore Goal?
Even though the target is ambitious for a 15 year period, you cannot risk your entire investment by simply investing in SIPs. With time, you will need to shift your allocation towards the debt component to reduce volatility and ensure that the money is available when you need it the most.
- Till year 10: Invest through equity SIPs to build wealth.
- At year 10: Shift the accumulated equity corpus to debt investments. This will trigger capital gains tax.
- Year 11 to 15: Allow your debt investment to grow with fresh contributions to reduce market risk.
If you plan to withdraw your entire equity gains in the year 10, it will trigger long-term capital gains, which can reduce your returns. As a result, you need to account that as well while calculating the needed corpus.
Alternatively, long-term gains up to Rs 1.25 lakh are tax-free every financial year (as per current rules). You can use this advantage to shift your allocations in a way that reduces your tax liability.
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