By investing in mutual funds through an SIP you can balance your EMI payment with your investment earning.
The new car that you are looking to buy will be your prized possession. However while purchasing the car the two important money questions before you would be – how much down payment can you make and consequently, what would be your loan amount?
Your EMI on the loan amount could be a substantial outgo from your monthly salary bill. However, with a little bit of planning, you can offset your EMI outgo by simultaneously setting aside some amount for investing. We take the example of investing in mutual funds through a systematic investment plan (SIP) to explain how you can balance your expenditure with your investment earning.
The only thing is you would need to have the surplus amount to invest to accomplish the goal effortlessly.
|Particulars (In Rs)||Car 1||Car 2||Car 3|
|Car price||6 Lakh||8 Lakh||10 Lakh|
|Down Payment||2 Lakh||2 Lakh||2 Lakh|
|Loan Amount (a)||4 Lakh||6 Lakh||8 Lakh|
|7 years EMI (a)||6500||9800||13000|
|Total EMI paid (Approx.)||546000||823200||1092000|
|7 year Monthly SIP (Approx.)||4000||5500||7000|
|Capital Accumulated (Approx.)||596000||820000||1043000|
|Overall Monthly Outgo (a) + (b)||10500||15300||20000|
|Assumed yearly rate of return||15%||15%||15%|
|Assumed yearly loan interest rate||11%||11%||11%|
The above table shows if you buy a car of worth Rs 6 lakh and make a down payment of Rs 2 lakhs. For a loan amount of Rs 4 lakh, your EMI would work out to Rs 6500 a month, for a 7-year loan. The overall amount you need pay will be Rs 5.46 lakh which includes principal and interest amount where the yearly interest rate is assumed around 11% approximately.
The table also shows if you start a SIP of Rs 4000 for 7 years in mutual funds where you are able to manage the annual returns of up to 15% approximately you will accumulate Rs 5.96 lakh in 7 years.
Therefore, with a total outgo of Rs 10,500 a month (EMI + investment) you will actually set-off your EMI payment by the end of the 7th year. It will not burn a hole in your pocket.However, the returns are market-linked and volatile in nature which is also not guaranteed. Therefore, the example as mentioned thereon is for illustrative purpose only. One should take help of financial adviser to accomplish one’s financial goal of buying a car where s/he can easily set-off one’s EMI by doing a certain amount of SIP over a particular time period.