Planning for your child's higher education? Deepak Shenoy shares a roadmap to build over Rs 1 crore corpus

With the cost of higher education rising much faster than regular inflation, parents need to start planning early if they want to avoid burdening their children with education loans. According to Deepak Shenoy, Founder and CEO of Capitalmind, a bachelor's degree that costs around Rs 10 lakh a year today could cost more than Rs 40 lakh a year in 18 years, assuming education inflation of 8% annually.

In a detailed post on X, Shenoy explained that while the numbers may initially appear overwhelming, disciplined investing and the power of compounding can make even a large education corpus achievable.

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Shenoy noted that Indian parents often consider a college degree essential for their children, especially since many companies continue to use it as a hiring criterion during the early stages of a career. However, obtaining that degree is becoming increasingly expensive.

He posted on social media platform X that, “We want our kids to have a degree. Sure, AI is changing everything. But get a degree, we say. It's not just a crutch; a lot of companies hire based on a degree, at least at the initial career stages.”



He pointed out that education inflation is likely to remain higher than regular inflation because demand continues to outpace supply. Using an example of an annual education cost of Rs 10 lakh today, Shenoy said that at an 8% annual inflation rate, the cost would rise to around Rs 40 lakh per year after 18 years.

For a four-year undergraduate programme, parents would therefore need to accumulate a corpus of approximately Rs 1.74 crore.

To illustrate how rapidly education costs have risen, Shenoy shared his own experience. He said his entire four-year engineering education at NIT Surathkal (then KREC), including tuition, hostel and food expenses, cost his parents less than Rs 1 lakh. Today, he said, tuition and hostel charges alone at the same institute are around Rs 7 lakh, excluding food and other living expenses.

Private institutions have become even more expensive. According to Shenoy, a four-year engineering programme at MIT Manipal now costs around Rs 20-25 lakh in tuition alone, while hostel and living expenses can push the total cost to nearly Rs 40 lakh, or roughly Rs 10 lakh per year.

How to build corpus

Despite the large target, Shenoy believes the goal is achievable if parents begin investing early and remain disciplined. His assumptions include that current education cost of Rs 10 lakh per year, the education inflation of 8% annually, the total requirement for four years of education available when the child turns 18, the monthly investments through SIPs with a 10% annual step-up and 11% annual return from equity investments

The accumulated corpus shifted to debt yielding 6% during the final two years before the child begins college to reduce market risk. Based on these assumptions, parents of a newborn would need to invest Rs 15,000 every month, while increasing the SIP amount by 10% every year.

Following this strategy, Shenoy estimates the corpus could grow to around Rs 1.77 crore by the time the child turns 18, comfortably meeting the projected education cost.

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Delaying investments makes the task harder

Shenoy also highlighted the importance of starting early. Parents who begin investing when their child is already six years old would still be able to reach the target, but would need to invest around Rs 25,000 every month, with a 10% annual increase.

If they wait until the child turns 10, the required monthly investment jumps to around Rs 43,000. He noted that he stopped his calculations after age 13 because the remaining investment horizon became too short for equity investments to compound meaningfully at the assumed 11% annual return.

While the calculations assume steady returns, Shenoy acknowledged that equity markets are rarely linear. He advised parents to gradually shift money into debt investments during the final two years before the education goal to reduce the risk of a market correction affecting the corpus just when the funds are needed. He also pointed out that incomes rarely remain constant throughout life.

Bonuses, salary hikes and one-time income can be used to make additional investments or top-ups, while temporary financial pressures may require some flexibility in contributions. Adjust the numbers based on your education goals

Shenoy emphasised that the Rs 10 lakh annual education cost is only an illustration. Parents planning to fund overseas education should simply scale the numbers accordingly.

For example, if the current annual cost is Rs 30 lakh, such as for certain Australian universities, all investment and corpus estimates would roughly triple.

How Shenoy planned for his child’s education

Shenoy said he has personally followed a similar approach while planning for his children's higher education. He began building the corpus for his elder child after Class 8 by investing as much as possible over several years and said the funding for all four years of education is now in place. He added that his younger child's education plan is also progressing as expected.

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According to Shenoy, parents need not overburden themselves, or eventually their children, with education loans if they begin planning early and allow compounding to work over time.

"We get lost in large numbers, but the compounding of investments often astounds us, if we do it right," he said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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