Planning to buy a car? Here is how to offset EMI outgo through investments.
By investing in mutual funds through an SIP, you can balance your EMI payment with your investment earnings.
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 earnings.
The only thing is you would need to have the surplus amount to invest to accomplish the goal effortlessly.
The table below shows that if you buy a car worth Rs 6 lakh and make a down payment of Rs 2 lakh, your loan amount will be Rs 4 lakh. Your EMI would be Rs 6,500 per month for a 7-year loan tenure. The total repayment amount (including principal and interest) would be Rs 5.46 lakh, assuming an annual interest rate of approximately 11%.
If you start an SIP of Rs 4,000 per month in mutual funds, with an estimated annual return of 15%, you will accumulate Rs 5.96 lakh in 7 years.
SMART TIP: With a total outgo of Rs 10,500 per month (EMI + SIP), you will effectively set off your EMI burden by the end of the 7th year.
This approach ensures that your car is paid for without causing financial strain. By maintaining financial discipline and investing consistently, you can secure your future expenses while also enjoying your new car.
Returns from mutual funds are market-linked and volatile, meaning they are not guaranteed. The example provided is for illustrative purposes only.
SMART TIP: Consult a financial advisor to structure your SIP and EMI strategy for maximum efficiency.