How to build a Marriage Fund for your Child’s Marriage

Goal Based Financial Planning – Building a Marriage FundArjun is a 30 year computer engineer staying with wife Tina and two year old son Ganesh. In office, Arjun was recently approached by his supervisor Ramesh (aged 50 years) for financial help for his son’s marriage. Arjun bailed out his supervisor with a temporary loan and the marriage event went on successfully as planned. Ramesh returned the money to Arjun after few months. In the evening at home, Arjun handed over the money to wife Tina to keep it safely and he casually shared with Tina the whole event related to Ramesh. While Tina was happy that her husband helped Ramesh during his difficult time, she asked Arjun what has he done or planned for his son Ganesh’s marriage so that he also does not land up in the same situation at the time of Ganesh’s marriage. Arjun gave it a deeper thought and realised that he had not done anything for their two year old son Ganesh’s marriage.

Do you also as a parent feel worried that you have not planned for your child’s marriage? Don’t worry, in this article we will teach you step-by-step how to go about planning your child’s marriage fund. Let us continue with Arjun’s example and see how Arjun can go about building a marriage fund for his son Ganesh’s marriage.

Step 1: Present Cost and Years remaining for marriage
At present Ganesh is 2 years old and Arjun plans to start looking at marriage proposals when Ganesh turns 25 years old. So Arjun has 23 years in hand to plan the marriage fund for Ganesh. As per Arjun’s estimates the current cost of a marriage in his community is Rs. 3 lakhs (excluding the gold cost).

Step 2: Calculate the Future Cost of the Marriage taking into account inflation
The current cost of a marriage in Arjun’s community is Rs 3 Lakhs. But considering the rising cost of living and the way prices of almost everything under the sun are moving up, a marriage that costs 3 lakhs today will cost significantly higher 23 years down the line. Just like the cost of education, the cost of marriage also is rising very fast.

Keeping in mind the inflationary trend let us assume that the cost of marriage will rise by 10% every year. The marriage that costs Rs. 3 lakhs today will cost a whopping Rs. 24.50 Lakhs (Rs. 24,42,082 to be precise) 23 years down the line if marriage costs rise by 10% year on year. So Arjun will have to make sure that he is ready with a marriage fund of Rs 24.50 Lakhs when Ganesh reaches the marriage age.

Step 3: Make an Plan: Roadmap for achieving the goal
Now that Arjun knows that he needs to build a marriage fund of Rs. 24.50 lakhs in 23 years, he needs to start thinking on how he should go about building this fund. With the help of a professional financial planner, Arjun should draw up an investment plan that will help him realise his goal.

The below table explains how to go about achieving the goal.

 

Year	Amount at beginning of year	Annual Contribution	Return on investment	Amount at end of Year
1	0	24022.73	12%	26905
2	26905	24022.73	12%	57040
3	57040	24022.73	12%	90790
4	90790	24022.73	12%	128590
5	128590	24022.73	12%	170926
6	170926	24022.73	12%	218343
7	218343	24022.73	12%	271449
8	271449	24022.73	12%	330929
9	330929	24022.73	12%	397546
10	397546	24022.73	12%	472157
11	472157	24022.73	12%	555721
12	555721	24022.73	12%	649313
13	649313	24022.73	12%	754136
14	754136	24022.73	12%	871538
15	871538	24022.73	12%	1003028
16	1003028	24022.73	12%	1150297
17	1150297	24022.73	12%	1315238
18	1315238	24022.73	12%	1499972
19	1499972	24022.73	12%	1706874
20	1706874	24022.73	12%	1938604
21	1938604	0	8%	2093692
22	2093692	0	8%	2261188
23	2261188	0	8%	2442083

 

The above plan explains how Arjun can accomplish his financial goal of building a marriage fund of Rs. 24.50 Lakhs in 23 years. Arjun can invest in diversified equity mutual funds for the first 20 years. Then 3 years before the goal date he can shift his money to safer fixed income avenues. An investor should not keep his money in risky investments like equities till the last year of investment.

Step 4: Implement the Plan
For long term goals like child education planning, child marriage planning, retirement planning etc. where the time horizon is beyond 5 years, investors can choose to invest in a mix of diversified equity mutual funds and balanced mutual funds. Historically in India equity markets have given returns of around 15% CAGR (Compounded Annual Growth Returns) over long periods. To know which mutual funds are good for long term investing, click here.

But we have taken a conservative approach and assumed a return of 12% instead of 15%. At the end of the term if Arjun has more money than planned in his marriage fund, it is a bonus for him. But by assuming aggressive returns which are difficult to achieve, if Arjun falls short of the required amount, it will lead to last minute problems for him.

Arjun decides to invest in a mix of diversified equity mutual funds and balanced mutual funds assuming that his investments will give returns of about 12%. Let us see how Arjun can go about building Ganesh’s marriage fund.

• Arjun will have to invest Rs. 24,022.73 annually (Rs. 2,000 monthly) for 20 years. Click here to know which mutual funds will be good for Arjun for good returns.
• Assuming that Arjun’s investments give him a return of 12%, in 20 years the value of Arjun’s fund will be Rs. 19.38 Lakhs.
• After 20 years Arjun can stop investing and 3 years before Ganesh is ready for marriage, Arjun can shift the money into a fixed income security to protect his fund in case there is a sudden sharp fall in the market due to any unexpected event.
• If the fixed income security gives a return of 8%, in 23 years Arjun will reach his target amount of Rs. 24.50 Lakhs (Rs. 24,42,082)

Arjun can use this amount to fulfil his dream of Ganesh’s ‘Big Fat Indian Wedding’ when he turns 25 years old.

This is how the rise in the cost of marriage and the building up of the marriage fund will look like

Step 5: Review the plan regularly
An investor should regularly review the performance of the mutual funds that he has invested in, to make sure that the selected funds are performing on expected lines taking him closer to his financial goal with every passing year. In this case, with the help of his financial planner, Arjun also will have to review the performance of the mutual funds that he has invested in, to make sure that they are giving returns on expected lines.

Conclusion
Let us quickly summarise the steps to be followed for child marriage planning:

• Step 1: Current Cost and Time Horizon
• Step 2: Calculate the Future Cost of the Marriage taking into account inflation
• Step 3: Make an Plan: Roadmap for achieving the goal
• Step 4: Implement the Plan
• Step 5: Review the Plan regularly

We saw how Arjun can go about accomplishing his goal of Ganesh’s ‘Big Fat Indian Wedding’. Similarly with systematic financial planning, you too can realise your dream of your child’s ‘Big Fat Indian Wedding’.

Do you have a financial goal in mind for your child??? Then what are you waiting for??? Do get in touch with us for your financial planning needs today!!!

Please let us know your views on the article by commenting in the comments section below or by writing to us at gopal_gidwani@yahoo.com

To know about the performance of mutual funds in the last 6 months, 1 year and 3 years click here.

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