Higher education available but unaffordable commonly

24 Oct 2018

Mr. Nair works at a bank and has a beautiful small family in which he lives with his wife, Rachna and daughter Ananya. In 2006, Mr. Nair after understanding the aspiration of his daughter Ananya to become an MBA started investing in a recurring deposit for 10 years @ 8.5% rate of return to accumulate funds for higher education of Ananya. He included the coaching fee and college fee in his calculation and set a target of Rs 6, 00,000 to achieve in 10 years. However, he didn’t take inflation into his calculation to reach the financial goal, which Mr. Nair realized in 2016 when Ananya cleared the entrance exam and found that the college fee in 2016 was Rs 18.5 lacs.

Mr. Nair was taken aback looking at the fee structure because what he planned for his only child was not enough. Ultimately he had to take loan for the bright future of his daughter Ananya.

An analysis on the increase in the fees of higher education indicates that the tution fees in top management institutes have risen faster than inflation. Between 2007 to 2016 the average inflation on conservative outlook was 8.44 % whereas the increase in the fees of top management institutes in the country rose at 12 to 19 % per annum.

In case of Mr Nair it is evident that the money he invested in recurring deposit for last ten years might have increased in numbers but has not increased his purchasing power. In fact the purpose for which the investment was done, got defeated at the hands of inflation in education sector.

We at Investocafe analysed the case study of Mr Nair and further research indicated that inflation in education sector has actually increased cost of education manifold. A brief comparison of fee structure in 2007 and 2016 in respect of main course (MBA) offered by top management institutes in India is as following:

1. IIM AHEMEDABAD: Fee in Year 2007: Rs 5.50 Lakh: Fee in Year 2016: Rs 18.50 Lakh: Fee Growth in 9 years: 236.26 %

2. IIM Bangalore: Fee in Year 2007: Rs 5 Lakh: Fee in Year 2016: Rs 14 Lakh: Fee Growth in 9 years: 180 %

3. IIM Calcutta: Fee in Year 2007: Rs 4 Lakh: Fee in Year 2016: Rs 19 Lakh: Fee Growth in 9 years: 375 %

4. IIM KOZHIKODE: Fee in Year 2007: Rs 4 Lakh: Fee in Year 2016: Rs 13 Lakh:Fee Growth in 9 years: 225 %

5. IIM INDORE: Fee in Year 2007: Rs 4 Lakh: Fee in Year 2016: Rs 13 Lakh:Fee Growth in 9 years: 225 %

6. IIM LUCKNOW: Fee in Year 2007: Rs 4 Lakh: Fee in Year 2016: Rs 11.80 Lakh:Growth in 9 years: 195 %

7. IIFT DELHI: Fee in Year 2007: Rs 3.4 Lakh: Fee in Year 2016: Rs 15.70 Lakh:Fee Growth in 9 years: 348.57 %

8. MDI GURGAON: Fee in Year 2007: Rs 5.89 Lakh: Fee in Year 2016: Rs 18.86 Lakh:Fee Growth in 9 years: 220.20 %

9. ISB HYDERABAD: Fee in Year 2007: Rs 14 Lakh: Fee in Year 2016: Rs 35 Lakh:Fee Growth in 9 years: 150 %

The above comparison clearly indicates that the cost of education will continue to increase at a faster rate than CPI inflation. Experts opinion in this gard is also positive on the uptrend in the fee structure since globally the management institutes have to invest lot of money in buying case studies, faculty salaries including visiting professors and international collaboration to expose students to other markets.

Hence it is suggested to all such parents or going to be parent that you need to invest regularly with discipline a certain amount, which you can calculate at the tools section on https://www.investocafe.com/sipCalculation, keeping the inflation at 10 percent for education. For instance, cost of a course in today’s value is Rs 20,00,000 then considering inflation at 10% for 15 years hence (in 2032), the value of the same course would be around Rs 83,54,496 and to reach this goal @14% rate of return you just need to invest Rs 13,791 per month in equity mutual fund for 15 years.

Remember the saying ‘Fail to plan is plan to fail’ therefore make a prudent decision today and set a financial goal and start investing through SIP way in mutual funds.
Best Wishes. 

Happy Investing!!!

Team Investocafe

Written by: Anvesh Pandey, SEBI Registered Investment Advisor
To get in touch, write on anvesh.pandey@investocafe.com or reach through www.investocafe.com.

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