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Recently, some sales persons of well advertised land development company were seen in public places including BMICH , promoting an investment plan for higher education needs of our children.
I saw the advertisement on TV also.
As per their plan, you have to deposit Rs. 5,000/- once and for all.
Then after about 15 years, when your kid enters under graduate level they will pay back 10,000 per month for 3 years.
As per them, the money will be invested in profitable ventures to generate the return.
Feeling uncomfortable , (mokakda mokakda wage ) I just calculated to see how much they can generate from 5,000 for 15 years.
For a return of 14% p.a. they will get 5000 x 1.14 ^ 15 = 35,689.00
For a return of 25% p.a. ( Sakwithis rate) they will get 5000 x 1.25 ^ 15 = 142,108.00
This is not enough to pay back 10,000 for 36 months as they need 360,000.00
That means ,if we forget about overheads taxes and every other thing,
their required return of investment is 33 % per annum continuously for 15 years. !
In other words, their cost of capital is 33% p.a.
(meantime, present value of 10,000 is about 1,500/-)
I saw the advertisement on TV also.
As per their plan, you have to deposit Rs. 5,000/- once and for all.
Then after about 15 years, when your kid enters under graduate level they will pay back 10,000 per month for 3 years.
As per them, the money will be invested in profitable ventures to generate the return.
Feeling uncomfortable , (mokakda mokakda wage ) I just calculated to see how much they can generate from 5,000 for 15 years.
For a return of 14% p.a. they will get 5000 x 1.14 ^ 15 = 35,689.00
For a return of 25% p.a. ( Sakwithis rate) they will get 5000 x 1.25 ^ 15 = 142,108.00
This is not enough to pay back 10,000 for 36 months as they need 360,000.00
That means ,if we forget about overheads taxes and every other thing,
their required return of investment is 33 % per annum continuously for 15 years. !
In other words, their cost of capital is 33% p.a.
(meantime, present value of 10,000 is about 1,500/-)
