A few years ago, Ramesh, a businessman from Hubballi, visited my office with pride. He had been making regular SIPs into a large‑cap Indian equity fund for ten years, planning to use the money for his daughter’s education in the United States.
When I asked him what currency the tuition bill would be in, he realised that he was saving in rupees while the cost would be in dollars. The gap grows every year: foreign tuition rises 5–8 % annually, and the rupee has depreciated 4–5 % against the dollar. A $200,000 program today could cost more than Rs 3.5 crore a decade from now.
Many parents try to use international fund‑of‑funds, but domestic houses hit SEBI’s $7 billion overseas investment limit, causing SIP suspensions. A better route is to invest directly in U.S. ETFs via the RBI’s Liberalised Remittance Scheme (LRS). Every resident, even minors, can remit up to $250,000 a year.
Investing in USD for foreign education has clear benefits. First, foreign shares must be declared under Schedule FA in the ITR‑2/3; failure to do so attracts heavy penalties. Second, LRS remittances convert rupees to dollars and deposit them into a U.S. brokerage account opened through a SEC/FINRA‑regulated custodian.
There are a few practical points to remember. Micro‑SIP costs such as brokerage, forex spreads (0.5–1.5 %) and wire fees can add up. It is better to accumulate rupees in a liquid bucket and remit quarterly or half‑yearly. Third, TCS applies to foreign remittances: up to ₹10 lakh per year is exempt, above that a 20 % tax is levied, but it can be offset against your tax bill or refunded. Finally, the Schedule FA reporting requirement is often forgotten after the initial excitement.
A balanced 60/20/20 blend of U.S. large‑cap (S&P 500), Nasdaq 100 and global equities has delivered about 13–14 % annual returns in USD over the last decade, and 11–12 % over a 15–20 year horizon. With the rupee’s depreciation, the same portfolio would have yielded roughly 17–19 % in rupee terms in the past ten years, and 15–17 % over the longer period.
The most costly mistakes happen near the end of the savings period. A good plan follows three steps: Build – compound aggressively in the same currency as the goal; Protect – shift into USD debt as the payment date approaches; Deploy – hold the last two to three years in USD cash so market swings do not affect tuition payments.
Funding overseas education is a hard‑currency liability with a fixed deadline. Relying solely on domestic mutual funds exposes parents to SEBI limits and rupee depreciation, while ignoring TCS timing, Schedule FA and the glide path. A well‑structured USD plan, managed with an LRS account, offers a smoother path to meeting that fixed cost.