Donation Seat – Why it is not good for higher education?
Donation seat is one of the options for the parents when their children didn’t get a good enough rank in entrance exams for higher education like Medical, Engineering, M.B.A, and I.I.T, etc…
In addition, Parents think that in buying donation seats that they can secure their children’s futures.
But in many cases, it is not true.
I know a lady who had completed dentistry, and She got the set with a donation of Rs.50,00,000.
In addition, She is working now for a salary of Rs.15,000 per month in a Dental Hospital.
Do You think that her father made a good choice of buying the seat with a donation?
No, He is not right.
I will explain to you why in this article.
Here, the father of the lady bought the donation seat thinking that it is a good move.
In addition, he thought that his daughter will earn more money than investing that Rs.50,00,000 anywhere like real estate or business or mutual funds shares or bank deposits.
First, You should know what is a good business before understanding the donation seat is worth of not?
The Father of the lady bought a donation seat means he has invested in this seat.
In addition, In his view, his daughter will earn more money than investing in anywhere.
I already wrote an article about what is the right way to do business.
A good business should give you more returns than inflation.
In addition, If your investment is not getting more return than inflation means, your money losing its purchasing power.
If the money loses it purchasing power, then one day you will become poor.
Now, Let’s look at the return on investment on donation seat for the father of the lady?…
The lady in this article completed her education at age 30 and started doing a job immediately until her age 60.
In addition, the salary growth rate expected every year is 7% and inflation expected in these 30 years is 5%.
In the above image, you can see that the lady( FAther) got a return on investment of “-3.116%” even after 15 years of job.
Moreover, the return on investment failed to give more return than inflation (5%).
In fact, the return is in native even after 15 years of job.
Moreover, the father’s investment in the donation seat failed to keep money’s purchasing power.
In addition, A business that has not given “+Ve” returns when compared with inflation or without inflation, then that business or investment will be called as worst business or investment.
You can see in the above image that returns on investment is still below the inflation (5%) even after the lady had worked for 30 years ( till her retirement).
Also, the money ( 50 lakh) failed to keep its purchasing power.
Again, even after 30 years also, this investment ( buying seat) had been proved as a bad investment for the Father of the lady.
When this Buying this donation seat for higher education will be called a good investment?…
A good investment should give you a return on investment of at least twice the inflation rate( 5%).
you can see in the above that the father of the lady got a return on investment of 10% ( Twice of inflation 5%).
In addition, to get this return, the lady has to earn Rs.5,02,894 for the first year, and then after every year, the income should grow by 7% year.
But the truth is that the lady in this case study is not earning that much salary now.
So, it is very clear that this donation seat investment by the father of the lady is proved to be a bad investment.
Conclusion About Donation Seat for Higher Education…
If you ask me, even the father gets a 10% ROI in 30 years, I will say it is not a good investment.
Why because the ROI crossed in the 20th year after the lady gets the job.
A business that turns into profits ( ROI more than inflation) in 18 years is not at all a good investment (business) to do.
So, it is wise to try to get a free seat with a good rank for the lady.
Otherwise, She has to study a course which is not a donation course at a low cost.
In addition, The father has to invest Rs.50,00,000 wisely based on his risk tolerance in assets real estate, equity mutual funds, and fixed income, etc to gift his daughter these assets.
If you have any doubts the investment planning or education planning for your children.
Then, it is wise to contact a Sebi Registered Investment Adviser to guide you properly.