Q. I am 22 and have just started working with a private company. After I gain 2 to 3 years of experience, I want to do my MBA in the US. I want to start an SIP for this rather than take a loan. How much should I invest?
Investing for your education through a Systematic Investment Plan (SIP) is a smart financial decision. To calculate the amount you need to invest, you must know the total cost of your MBA including the university fees and the living cost.
University fees
The cost of an MBA course in the US can vary widely based on the school, location, and programme length. A safe estimate would be between $50,000 and $150,000. You need to factor in the prevailing exchange rate as well as inflation.
Living cost
Please add on the cost of housing, food, transportation, and books. The annual living cost in the US ranges from $30,000 to $40,000.
Working out the likely total requirement
The education inflation in the US is currently around 3% p.a. Taking into account currency depreciation, the cost of education has to be inflated by about 6% and the cost-of-living expenses by 5%. Remember that adverse currency fluctuations can have an impact on your requirement.
Let us work out some figures for greater clarity
| Cost component | After 2 years | After 3 years |
| University fees (current value) | $ 150,000 | |
| Cost of living (current value) | $ 70,000 | |
| Future value of university fees | $ 169,000 | $ 179,000 |
| Future living cost | $ 77,000 | $ 81,000 |
| Total corpus required | $ 246,000 ( ₹1.97 crores) | $ 260,000 ( ₹2.10 crores) |
Investment
As you have 2 to 3 years of time to reach your education goal, it is recommended that you do not invest in riskier assets like direct equity or equity funds. Your monthly surplus should be directed towards less volatile instruments like debt-oriented mutual funds.
Assuming investments in debt mutual funds, for a span of 3 years, every month you need to invest about ₹5.30 lakhs. For 2 years, you need to save ₹7.74 lakhs each month. If you have higher risk-taking capacity, you can even invest in conservative balanced funds such as equity savings to reap better returns, subject to lesser market volatility.
Please note that for the next 2 to 3 years your surplus income must be diligently invested for the sole purpose of pursuing MBA in the US. If you fall short of funds, then you will need to get a scholarship or take a loan to bridge the gap.
Along with the total cost of the MBA, please consider your current expenses and financial obligations. A financial advisor can help you create a comprehensive financial plan and ensure that you are on track to achieve your goal.
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