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How to pay for an IIT Engineering degree with only PPF investment?

Posted on 25 Feb 2024
Author: Sayan Sircar

Tags: Children

11 mins read
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PPF is a great safe and guaranteed investment that can be used for investing enough to pay for a 4-year IIT engineering degree.

How to pay for an IIT Engineering degree with only PPF investment?

Disclaimer: This article does not propose that an IIT undergraduate degree is the best option for every child. Parents should be conscious of the stress that children go through while preparing for the entrance examination which unfortunately continues in many cases during the 4 years at IIT. This is a personal finance blog and the focus is only on investing suitably for a college degree.

📚 Topics covered:

Why choose PPF for investing for children’s college?
What is the cost of an IIT degree?
How much money can you make by investing in PPF?
Whose PPF account should you use for for college?
When to open the PPF account?
What is the right way to invest in PPF for college?
What if the PPF account matures before IIT expenses are due?
What if the PPF account matures too late for admission fees date?
How to invest for a college degree if you want to take a little more risk than PPF?

Why choose PPF for investing for children’s college?

Public Provident Fund (PPF) offers a guaranteed, safe and tax-free return that many people find comforting for using for a child’s college education goal. There is nothing wrong with the approach of using safe investment for the college goal but parents should be aware of the complete pros and cons.

Many people might want a way to ensure that the money for the college education goal is locked away so that it cannot get spent on frivolous things.

What is the cost of an IIT degree?

IIT Degree Fee Schedule

Here we will follow the simple method of using the website of IIT Bombay to estimate the various costs related to a 4-year engineering degree at IIT. The numbers are accurate as of February 2024.

Year	Cost in lakhs	Cost after 15y
1	3.14	8.66
2	2.14	5.90
3	2.14	5.90
4	2.14	5.90
Total	9.56	26.38

For admission and other setup costs (laptop etc.) we have assumed ₹1 lakh extra in the first year. We have assumed 7% inflation in fees for the next 15 years:

Cost after 15 years = 1.07 ^ 15 times cost today

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How much money can you make by investing in PPF?

Historical interest rate and investment limits of PPF

PPF is not always the best instrument for college goals since it can create a corpus only up to a certain limit based on the interest rate it offers (which changes over time) and the amount of investment per year is also fixed.

Money Made Via 15 Years Of Investment In PPF (₹ Lakhs)

If the college cost is more than what is there in the PPF account, you will have to arrange funds from other sources or take an educational loan. If the PPF interest rate of 7.1% continues and if you invest the maximum allowed ₹1.5 lakhs/year, you will make around ₹40 lakhs: How much money has been made by investing in the Public Provident Fund (PPF)?

So to reach the total corpus of fees of ₹27 lakhs in 15 years in PPF, you should invest ₹8,500/month. Ideally you should invest more than that, preferably up to the current limit of ₹12,500 since:

the PPF interest rate 7.1% can fall anytime
there will be other expenses, like living costs, visiting home-town, laptop, cost of industrial training, preparation of CAT/GATE/GRE etc. that you will need to fund

Whose PPF account should you use for for college?

There are two things that you have to keep in mind:

there is a limit of ₹1.5 lakhs/year investment that is tracked at the PAN level
PPF matures in 15 years and then can be extended in blocks of 5 years

As per the ₹1.5 lakhs limit, a parent cannot invest more than ₹1.5 lakhs/year in their own plus child’s PPF combined. So there is no difference in whose PPF account it is.

Paperwork will be easier if that parent simply opens a PPF account in their own name for this purpose if they don’t have one already. Most banks offer online PPF account opening.

Other parents might want to keep the finances of their child separate and open a new PPF account.

When to open the PPF account?

Since IIT starts at age 18 of the child, you need to plan the account maturity (which is always on 1st April) to happen before the admission fees are due.

Age	Event
16	IIT Coaching Year 1
17	IIT Coaching Year 2
18	Admission + Year 1 in IIT
19	Year 2 in IIT
20	Year 3 in IIT
21	Year 4 in IIT

Some thumb rules can be:

open a new PPF account in the name of a family member (parent, grand-parent etc.) who does not already have a PPF account anytime before the child is 3 years old
utilise an existing PPF account and start investing in that as soon as the child is born

You can even use the money received for the Rice Ceremony as a lump sum to kick-off the PPF account in the child’s name.

Also read
What are the best ways to pay off a large credit card balance quickly?

What is the right way to invest in PPF for college?

You get the most interest by investing the entire ₹1.5/lakh for the year before 5th April. However, the final corpus, if you invest ₹12,500 every month (12,500 * 12 = 1.5 lakhs) is not very different: How to get the most interest when investing in PPF?.

Please do not make the common mistake of investing ₹12,500/month in an RD to invest ₹1.5 lakhs in PPF next April. That actually reduces returns since the RD interest rate, especially after tax, is much lower than the PPF rate.

What if the PPF account matures before IIT expenses are due?

You should keep the amount in multiple FDs that mature every 6 months as per the IIT fee payment schedule.

Date	Event
Apr 2025 or earlier year	PPF maturity
Jun 2025	FD maturity for admission fees
Dec of 2025	FD maturity for semester 2
Jun of 2026	FD maturity for semester 3
Dec of 2026	FD maturity for semester 4
Jun of 2027	FD maturity for semester 5
Dec of 2027	FD maturity for semester 6
Jun of 2028	FD maturity for semester 7
Dec of 2028	FD maturity for semester 8

Fees are due for every semester and there are 2 semesters per year. You can check PPF maturity dates here: When does a PPF account mature?

What if the PPF account matures too late for admission fees date?

Banks like SBI and Canara Bank (which were there on campus the day I took admission to IIT Bombay) and many others offer loans at reasonable rates to IIT students. Most of the time, they will have a branch outside the campus gate and a kiosk or stall beside the admission office at the time of admission.

SBI offers an excellent product called SBI Scholar Loan that you can explore.

If your PPF account is maturing after the admission fees are due, simply pay the fees now from educational loan and once you get the PPF maturity in April, pay off the loan with the PPF. The rest of the PPF amount goes into FD.

How to invest for a college degree if you want to take a little more risk than PPF?

PPF creates a much lower corpus compared to mutual funds and that is the cost of choosing safety.

PPF vs mutual funds for 15 years

We have already shown that PPF has not beaten risky assets like equity in less than 10% of cases since 1979: The latest result of PPF vs. SENSEX.

You can follow the complete goal-based investing process as explained:

Step 1: Identify your child’s goals

Your child’s school and other regular expenses will come from monthly income. But you need to plan for bigger expenses in advance:

Which of these are you saving for:

school admission
school trip to the US at age 14
UG-PG college degrees
house down payment after their first job
marriage

To understand how to create a child’s education plan:

Step 2: Insure yourself first

You need to ensure that an untimely death will not prevent your child from going to their future dream college. Term insurance is the right product here. Every earning member of the family must have adequate term insurance.

The whole family, i.e. child and parents should also have sufficient health insurance. This step prevents loss of income or a setback to investment goals due to illness.

Step 3: Make an investment plan to cover your child

Children’s education and other goals do not exist in isolation. They are a part of the comprehensive goal-based planning that parents need to do for their own retirement and everything else. The process is explained best with these examples:

There are more case studies here: Case Studies.

We have proven that the goal-based investing process works in most market conditions in this article: What is the best way to invest for your child’s college education?.

Step 4: Review the plan once a year

As time passes, things change:

stock markets go up and down creating or reducing portfolio value
income increases or decreases (sabbaticals, parents leaving the workforce to look at the kids, illnesses, parents re-entering the workforce)
the amount of money available increases (windfalls like inheritance or RSUs) or decreases (loss of income, death, medical emergencies)
college degree plans change as the kid grows up

Therefore the plan created in Step 3 has to be reviewed and rebalanced to check if you are still on track: Are your investments on track for your goals?.

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