Is Your Child's US Education Fund Safe From Rupee Trouble?

Are you worried about the rising cost of sending your child to study in the US? You're not alone. With the Indian rupee losing value against the US dollar, funding a foreign education can feel like an uphill battle. Deepo Chadri, one of our community members, recently brought this very concern to my attention, and I realized many parents must be facing the same challenge.

At first, I explored some complex financial instruments to tackle this issue. But honestly, these aren't really suited for most of us. They're more for the big players, like institutions. So, I dug deeper, consulting resources like ChatGPT to find practical solutions.

Remember, tools like ChatGPT are powerful, but they're not magic wands. You can't just ask for "good investment advice" and expect a perfect answer. It's like asking a professor a question – the better the question, the better the response. I spent a lot of time discussing the problem to get useful recommendations.

What's the Financial Freedom Framework?

In our community, we offer a course where we build a complete financial plan for our members. We call it the "Financial Freedom Framework." It covers everything from setting up an emergency fund to planning for retirement, including those big goals like funding your kids' education and buying a home. As part of this, we invest in different assets that match your goals and how much risk you're comfortable with.

Finding the Right Investment Strategy

Deepo's main concern was finding a safe investment that also protects against the rupee's decline. So, the goal was to find investment options that hedge against rupee depreciation. After some research and discussions, ChatGPT pointed us to two platforms: Vested Finance and Money.

Now, a word of caution. It's tempting to jump into US stocks, especially when you hear about potential gains. However, it's super important to understand what you're investing in. Don't invest in something just because it's popular. Think of it like trying to navigate a new city without a map – you'll probably get lost! It is best to invest within your circle of competence. Since the goal is your child's education, safety is key. That means we need to focus on less risky investments.

Exploring US Debt ETFs

So, where can you invest safely in the US market? US Treasury bonds could be a good option. These are essentially loans to the US government and are considered very safe. You can invest in them through Exchange Traded Funds (ETFs).

ChatGPT suggested a few specific ETFs:

• SHY: This ETF invests in short-term (1-3 year) US Treasury bonds. It's considered very safe and offers relatively stable returns.

• IEF: This one holds medium-term (7-10 year) US Treasury bonds. It's a bit more balanced, offering a slightly higher return than SHY but with a bit more risk.

• TLT: This ETF focuses on long-term (20+ year) US Treasury bonds. It has the potential for higher returns, but it's also more volatile.

• TIP: These are Treasury Inflation-Protected Securities. If you're worried about inflation, these bonds adjust to protect your investment's value.

The best ETF for you depends on how long you have to invest. If your child is still several years away from college, TLT might be a good fit. However, keep in mind that longer-term bonds are more sensitive to interest rate changes, so they can be more volatile.

One thing to keep in mind: don't expect the same high returns you might see in the Indian debt market. Returns from US Treasury bonds will likely be more modest, maybe around 4-5%. That's the trade-off for getting the added security of hedging against currency fluctuations.

Choosing the Right Platform

I recommend checking out both Vested Finance and Money to see which platform works best for you. Talk to their experts and get their advice on the best investment strategy for your situation. They can provide personalized guidance based on your specific needs.

Understanding the Tax Rules

Here's how taxes work. Unlike some debt investments in India, investments in US debt are subject to capital gains tax.

• If you hold the investment for less than 24 months, any profit is taxed as a short-term capital gain (STCG) based on your income tax slab. There are no taxes in the US, but there are taxes in India.

• If you hold it for longer than 24 months, it's taxed as a long-term capital gain (LTCG) with indexation benefits. Indexation means the purchase price of the asset is adjusted for inflation, which can reduce your tax liability.

Plan Your Investment

To help you figure out how much you need to invest, you can use our Stepped-Up SIP Planner.

Here's how it works:

1. Target Amount: Enter the total amount you'll need for your child's education.

2. Number of Years: How long do you have until you need the money?

3. Expected Annual Return: Be realistic about the returns you expect from US Treasury bonds (around 4-5%).

4. Annual Growth of SIP: Do you plan to increase your investment each year? If so, by what percentage?

The calculator will then tell you how much you need to invest each month to reach your goal.

For instance, let's say you need ₹80 lakh in 5 years and expect a 4.5% annual return. If you increase your investment by 6% each year, you'd need to start with a monthly investment of around ₹1.06 lakh.

Stay the Course

It's important to stick to a well-thought-out financial plan. I've seen cases where students who took our course got tempted by quick gains and ended up losing significant amounts of money. Don't let short-term market trends distract you from your long-term goals. We follow our strategies strictly and achieve our goals.

If you have any questions or concerns, please join our Monday support sessions. We're here to help you stay on track and make informed decisions.

Join my FREE webinar - How to Build 8-Figure Wealth with 5-Figure Savings: https://www.utpalkc.com/landing-pages/landing-page-1?utm_source=utpalkc_blog