Jennifer

A. Planning for university fees is an area where there are many options and in which analysis of your specific situation will go a long way to determining the best path for you to follow. There are a few issues that I would like to highlight for you. 

First, it is important to note that you are American, residing in India. You haven't indicated whether you are married or single or if you are married, the nationality of your spouse. Therefore for purposes of this explanation, I will assume that you are single and that your children are American, with no other nationality and will attend university in the United States.  The planning options and challenges, of course, expand if additional nationalities are involved.

 Your question focuses on whether to invest in some type of insurance based investment plan or whether to invest yourself or save the money in a regular bank account. First, it is never a good idea to invest in something that you do not understand and so you will want to be sure that you go back to the insurance sales representative to be sure that you have all of your questions answered before making any kind of decision. It will be important for you to understand exactly how this product works from start to finish, if your child doesn't attend university, goes to university in another country altogether, etc. Also, be sure that you understand and can quantify all the different expenses that the plan contains. For example, is there a sales load on the product itself? Many of these products are a form of a variable life policy. In this regard, they often take 10 years to build up any cash value at all, due to heavy front-end charges. Also, the underlying investment choices are most likely mutual funds. The taxation of this type of product for an American can get complicated very quickly and therefore you will want to check with your tax advisor about this product as well.

The other options you mention are the creation of a portfolio dedicated to funding the university costs or funding the costs via saving in a bank account. There are several issues here as well, that after you analyze your options, you will be in a better place to make some decisions. The first issue is currency control. With regard to currency control, you would be allowed to invest overseas or in India right now and at least for now, you would be allowed to remit funds at the time that your child(ren) actually attend university. Another factor is the currency risk that you are carrying if you are saving for a US dollar expense in rupees, the currency in which you are paid, interest rates paid by various local and US dollar denominated bank accounts, time to funding the first year, average rate of inflation for university costs, the number of years that you are funding in total and the approximate US dollar value per year of the type of school you expect your child(ren) to attend. If the average rate of inflation for US university costs is 6%, then your investment program must exceed this rate, assuming that you must fund this goal out of current income.

 Also, don't rule out the US based UGMA/UTMA custodial accounts, 529 qualified tuition plans, Coverdell Education Savings Account and a taxable investment account in your own name. The pros and cons of these types of plans will be dependent on your tax situation. Lastly, 2008 provides opportunities for reduced capital gain treatment to certain taxpayers. The next six months are a great time to sit with your financial and tax advisor to analyze where you are now, what it will cost to fund this goal and then map out a strategy that will work for you and your family.

Jennifer A. Patterson, CFP® (US), CIMC™, CIMA® is Vice President of Patterson Partners Ltd., an international wealth management firm that specializes in cross-border financial planning. www.patterson-partners.com

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