We are a young couple with a three-year-old daughter. We wish to provide her with good quality education abroad. How do we plan it? We also plan to have another child in a couple of years.
It is good you are planning for your daughter’s education when she is young and this will also help in planning for your second child’s education as well as your other financial goals. To start with, you need to determine how much it costs to study overseas as of today. This number can be checked by visiting various education institute websites to determine the fees and it can be further topped up with boarding and lodging expenses as well as travelling expenses, including your travel to visit your child at regular intervals. Assuming the number is ₹ 30 lakh per annum and the child has to spend 4 years in the institute, the total cost becomes ₹ 120 lakh. This now needs to be adjusted with inflation more specifically education inflation. While this percentage can only be assumed based on the rationale of the trends gone by, you also need to factor the currency depreciation. Hence, two parts to inflation i.e. inflation rate of the country you are planning to send (again this can be indicative as it is too early for you to decide) and the currency depreciation. This if we assume at 5% for currency depreciation and 2% for country inflation which will make it a total inflation adjustment of 7%. And this corpus is required when your daughter turns 18 years.
The goal being long term, you can consider equity as an asset class for investment. And the returns then can be assumed for long term at 12%. Subject to the above, you will need to save ₹ 65,000 per month to achieve the same. You can keep adjusting this as you come closer to the goal.
Suppose I leave a company without withdrawing my PF and don’t join another company, for how long will the government pay interest on it?
Once you leave your current employer and don’t join any new organisation for employment, the PF account due to non-operation will become an inoperative account—this happens when there is no contribution for a continuous period of 36 months—being classified as a dormant PF account.
All PF accounts were earning interest whether active or dormant before restrictions were imposed on the dormant accounts with effect from April 2011. Post the same, the interest accrual was stopped in these dormant accounts. This was done primarily to help EPFO save interest payouts on non-operative accounts. However, this restriction was lifted from April 2016 and the dormant accounts were again allowed to earn interest till the account holder attains retirement age.
In case you continue with the inoperative account, make sure the account is fully KYC compliant and ensure that the UAN (Unique account Number) has been allotted to you for ease of dealing with PF authority going forward.
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Surya Bhatia is managing partner of Asset Managers