You often hear people say that it is the journey, not the destination that matters. And the journey to your destination is always sweeter if you are travelling in your dream car. But, a dream car shouldn’t remain a dream if you plan your finances aptly. Let’s see how:
The journey routes for buying a car
You could start your journey to buying a car by availing a loan. However, getting into a debt to fulfil your dreams isn’t ideal.
You could even use up your savings to buy your dream car. But, savings should generally be used in times of trouble.
You may even decide to tap into your investments. But, that may leave your future goals in the lurch.
However, there is one way of investing for a car with minimum fuss: mutual funds.
Mutual funds: the option with least tolls
Say, the car costs Rs. 5 lakh and you decide to buy it on loan at an interest rate of 9% for four years. Your monthly debt would be around Rs. 12,443 and the total cost of the car, after repaying the loan, would be around Rs. 5.97 lakh. That’s almost a lakh more than the original cost of the car.
Exhausting your savings and investment would mean that you’d have to start planning for the future from scratch again.
In case of mutual funds, you might have to wait a year. But patience can help safeguard your savings and from loan interest payments. That’s because mutual funds’ power of compounding can ensure that you buy the car of your dreams.
Mutual fund options
There are many types of mutual funds in the market. If you opt to take the equity mutual fund route, there is a possibility of amassing Rs. 5 lakh at the end of the year by investing around Rs. 38,500* every month. However, it is important to note that equity mutual fund returns can fluctuate wildly over the short-term.
Debt mutual funds can be the answer if high risk doesn’t sail your boat. Because they are a safer option than their equity counterpart, the return on investment is comparatively lower. That’s why you’d have to pay a slightly higher amount every month (Rs. 40,000) to make Rs. 5 lakh^ at the end of the year.
Under hybrid funds, which are a mix of both, equity and debt mutual funds, the monthly payment would be around Rs. 39,000 to get the required amount in a year.
In many cases, people save a long time to get their hands on the preferred car. But, you don’t have to wait that long if you are a disciplined investor. For instance, in order to get the Rs. 5 lakh car, all you need to do is to invest Rs. 6,500 per month** in an equity mutual fund for four years. In contrast, merely hoarding your money in a savings account would take a lot longer for that to happen.
Bottom line
Various calculations show that investing in mutual funds can be a better idea than taking a loan or tapping into your reserves. However, it is important to remember that there are various types of mutual funds in the market. Each scheme helps you achieve a different goal. This is why it is important you do enough research before you start investing in mutual funds, especially because there are different ways to save for a car. So, click here to know about the different mutual funds in the market and how Franklin Templeton can help you realise your dream.
* Note: The calculation is based on category average one-year returns for equity mutual funds as on September 29, 2017, which is 15.31%
^ Note: The calculation is based on category average one-year returns for debt mutual funds as on September 29, 2017, which is 7.61%
** Note: The category average for equity mutual funds for past four years as on September 29, 2017, is 22.24%
Note: Past performance doesn’t indicate future results.
Mutual fund investments are subject to market risks. Please read the scheme information and other related documents before investing