A million $$$ question

Dear friend,

Here’s a million dollar question to you.

Suppose you suddenly hit a jackpot of Rs 20 lakh. You spend Rs. 10 lakh lavishly on all your favorite things & now you wanna invest the remaining amount that would give you a good return on investment.

Let me try to help you with this problem.

Consider some of the options you have:

1) Fixed deposits – this is a traditional investment plan with low returns & low risks involved. This lacks the challenge that we seek whenever we make investments.

2) Real estate – this is in pretty bad shape now, esp. around Bengaluru & as it is you may nothing for Rs. 10 lakh these days :)

3) Stock market – with soaring oil prices & inflation, there doesn’t seem to be much in favor of investing in stocks. There are predictions of US Presidential elections reviving the market. But as we have seen, Indian market seems to be sometimes aloof of global cues. So it might be an unpredictable investment.

At this juncture, let me provide you a new option. Say suppose, I need Rs 10 lakh for my MBA course & I request you to lend some money from your Rs. 10 lakh reserve. If you do so, I’ll pay you back your initial investment amount with additional incentives after my MBA. Would you do this investment?

All of us have heard that the best form of investment is education. But of course the primary benefactor of education will be the student himself. Can there be some form of mechanism where even others can obtain monetary profit from your education?

Lets forget for sometime that we are friends & see my proposition from a purely investment perspective. Here is the description of the returns I’ll give:

After passing out from my MBA & obtaining a job, I’ll set aside half of my salary for my yearly expenses (including income tax payment), a quarter for paying back my student loan and the remaining quarter as payment for my “education investors”.

Here are some objective facts that might help you in your decision making:

1) Placement rate in Rotman School of Management (the school I’ll be attending) with-in 1st 3 months : 94%

2) Average salary: CAD $ 120,000, highest: CAD $ 300,000, lowest: CAD $ 50,000

3) Average work-experience: 4 yrs, my experience: 4 yrs.

4) Average GMAT score: 640, my score: 720. Please note that GMAT score can’t be directly correlated with academic performance. Moreover I happen to be from a very competitive Indian IT pool which will have much higher average GMAT score (my estimation is ~700)

5) An important macro-economic consideration you’ll need to make is the increasing trend of CAD $ against the Indian Rupee. Would it continue for few more years?

Let me explain your returns with an example. Say you’ve invested Rs 1 lakh. After 2 yrs, I get a salary of CAD $120,000 (i.e Rs 48 lakh @ Rs 40 per CAD $). I have allotted 25% of my salary for returning to my investors which will amount to Rs 12 lakh. Since you’ve invested Rs 1 lakh, you’ll get 10% of 12 lakh, i.e Rs 1.2 lakh. So your return on investment for 2 yrs is 20%.

You’ll be entitled for more if my salary is more & lesser if lesser. But you may lose some money if my salary is less than CAD $ 100,000.

So my million dollar question is, are you ready to invest in my education? If yes, how much?

Please add your answers/doubts/suggestions in the comments section below.

N.B. some of the numbers mentioned below may be deviated from actual figures.