Investing in the US markets for your child’s education
More than 750,000 students from India went abroad to study in 2022. While loans are an option to fund this education, parents typically end up either partially or fully funding their child’s education. A four-year undergraduate degree today can cost anywhere between ₹80 lakh and ₹2.5 crore, while a two-year master’s degree ranges from ₹50 lakh to ₹1.5 crore. Funding this education is a major expense for any parent.
When saving towards this education goal, often parents overlook two key things. The first is the impact of inflation on the cost of education. A typical calculation for a parent works like this – my daughter is 5 years old today and she will go abroad in another 10 years. The fees that universities are charging today is ₹1 crore, I have saved ₹25 lakh already, so I need to earn about 17% returns per annum to hit my ₹1 crore goal. However, the ₹1 crore fee today is not going to stay the same after 10 years. In rupee terms, the cost of a US education has increased by 11.4% per year on average over the last 40 years. This means that if the course costs ₹1 crore today, your goal should be to save around ₹2.5 crore after taking inflation into consideration.
Although, you may be wondering that 11.4% annual inflation seems very high. This brings me to the other piece that gets overlooked: the rupee’s depreciation against the dollar. If you look at the annual inflation of US education in dollar terms, it’s only 5.7%, but because the rupee has historically depreciated about 3-4% per year against the dollar, the rupee inflation tends to be much higher. So, if you save towards a foreign education directly in dollars, you would need to save less. Now, until about 5 years ago it was unthinkable for an Indian to save in
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