Marriage is an absolute reality for most – and when it comes to daughters – it comes replete with an array of events which would all add to the cost from the perspective of the parents. It is mandatory to plan for there are ornaments and clothes to buy for the girl which is further compounded by the cost of entertaining and gifting – friends and relatives alike!
The costs can be astronomical – it would all depend on the status of the family and societal perceptions prevailing at that point of time. Notwithstanding – the cardinal rule would invariably be to plan and plan early.
Smart Investment Planning for a daughter’s marriage would invariably be a function of some specific factors:
– Timeline
– Liquidity
– Returns on capital and
– Safety
The road map to financial planning for just such an occasion has been unstructured for most and better planned for some. The commonest source for planning for a daughter’s marriage could well be to put away a part of the salary towards expenses – while the more strategic could well be to create an investment pool. The endeavour has been to create an investment dashboard for options and action plans which could well go a long way towards planning for the wedding and watching your loved one depart for yet another prosperous inning in life.
The Action Plan
The plan of action would predictably adopt the sequence as under:
- Estimate the present cost of a wedding
- Predict the number of years remaining for the marriage to happen
- Compute the future cost of marriage factoring in inflation
– To illustrate the case in point if the marriage was to cost INR 3 Lac today – assuming inflation @10 per annum – the same would cost INR 24.42 Lac twenty three years later
- Once the cost of marriage has been estimated a financial road map needs to be created.
– To further elaborate – a monthly investment of INR 2,000 @12 % would mature to INR 19.38 Lac in twenty years or 24.4 Lac in twenty three years (assuming shifting of funds to a more secure investment for the last three years @8%)
The typical mix of investments while planning for the marriage could well include some or most of these:
| AGE(IN YRS) | PROPOSED AGE OF MARRIAGE(IN YEARS) | INSTRUMENT | PERIOD OF INVESTMENT(IN YRS) | MONTHLY INVESTMENT(INR) | RATE OF RETURN% | MATURITY(INR LAC) |
| 1 | 21 | SIP(MUTUAL FUNDS) | 20 | 2,000 | @18% | 3519071 |
| 2 | 25 | MUTUAL FUNDS (DIVERSIFIED) | 20 | 2,000 | @12% | 19.38 |
| MUTUAL FUNDS (BALANCED) | 3 | 19.38 LACS + 2,000 PER MONTH | @8% | 24.4 | ||
| 3 | Gold ETF | 20 | 2,000 | @11.7% | ||
| 4 | Real Estate Investment Plot | 20 | 5- 15 Lac | @9% annualized |
SIP in Diversified Mutual Funds
The assumption being that the rate of return on top diversified mutual funds in the next twenty years would be @18% per annum – although the rate of return for the last ten years has been @35% per annum.
Pros
- The rate of return is robust and helps attain the target with a small monthly investment
- The risk index is lower than for shares and stocks
Cons
- The estimated rate of return may not be achieved as it depends on economic and market factors
- There are risk factors like in the share market so turndown in global or domestic markets could adversely affect this investment
- Past rate of returns do not necessarily guarantee matching returns in the future
Gold ETF
Gold ETF or Exchange Traded Funds as they are more commonly connoted are essentially dematerialized gold – for one could well trade in gold without taking physical possession of the gold. The advantage of Gold ETF as an investment option while investing for daughter’s marriage is one relevant investment instrument considering that it helps keep pace with the prevailing rate of gold at the time of marriage.
Pros
Statistics indicate that 10 grams of gold cost INR 4100 in the year 2001 while the year 2012 has been witness of gold spikes upwards of INR 26000 per 10 grams. The only way that the rates could have kept abreast would be by buying Gold periodically!
A relatively safe fund which is slated to return higher than inflation rate of return annualized.
Cons
The yellow metal when procured from an agency dealing with a low asset or volume base would show lower than market rates and would also be more difficult to buy and sell. This could well be considered as a liquidity crunch so in essence all Gold ETF bonds are not the same!
When converting to physical form like Gold Bars the exchange cost is a lost which is difficult to predict twenty years hence!
Real Estate Investment
Real Estate investment options are one of the preferred options when it comes to capital appreciation and forced saving options which could be adopted when the time is available is in the range of 5-20 years. Time Line is simply the difference in years of the proposed age at the time of the marriage less the present age. To illustrate:
If the age of the daughter is 8 years and the proposed age of marriage is 21 years then the time line available for investment is
21 – 8 = 13 years.
Pros
Real Estate Investment in the right location at the right time could well give returns upwards of even 14% rate of return and liquidation of a plot may well address the cost of the marriage.
Cons
The perceived windfall from real estate is a myth the rates are the same as gold ETF for instance. To illustrate:
A flat bought in the year 2000 for INR 28 Lac and selling for INR 1 Crore after 9 years has a CAGR of 15.2%. Now compare with gold investments over the same timeline:
Growth was selling at $300 an ounce in 2001 and after 9 years it sells for $ 1100 an ounce. The rate of return is 15.5% – which is 0.3% higher and the amount of capital to invest is much lower. There is no long term capital gains tax to pay and no home loans interests to factor in.
Conclusively then the pick of options could well be one and the time line could be divided into different investment options for different periods and the marriage is more than taken care of!
