Invest in Mutual Funds to Buy a Car

Buying a car is really costly these days. A good car costs Rs 10 Lakhs or even 15 Lakhs and is an important financial goal. After buying a house the next step is to buy a car. Many people simply avail a car loan to buy the dream car.

Car loan rates range from 9-13% a year. This interest burden could land you in the loan trap. Car is also a depreciating asset and loses value with time. If you want to stay away from the loan trap, save and invest for the new car.

Mutual Funds are an excellent investment these days. They help achieve financial goals like buying a car. What’s great about mutual funds is both aggressive and conservative investors can invest in them.

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Invest in Mutual Funds to buy a Car

Invest in Debt Funds and Buy a Car

Debt Funds are an excellent investment for the short-term. If you have a time horizon of 3 years or less, invest in debt funds and buy the car.

See Also: How Mutual Funds Work?

Mutual funds invest in debt, bonds and government securities. Fixed Deposits and RD rates are coming down.

You can invest in debt funds through SIPs. A SIP is not a mutual fund. It’s a way of investing in a mutual fund.

Let’s take at a look at the 2-year returns of 4 debt mutual fund schemes.

Scheme Name	2-year returns
Axis Short Term Fund- Growth	10.46%
Kotak Bond Short Term Plan Growth	10.32%
HDFC Short Term Debt Fund Growth	10.71%
ICICI Prudential Short Term Fund Growth	10.38%

These returns are from a time period exactly 2 years ago. So, if you had invested Rs 6 Lakhs exactly 2 years ago with these short term debt funds, you would have earned around Rs 6.6 Lakhs to Rs 6.7 Lakhs. This is enough money to buy a car.

See Also: Which Type of Mutual Fund Is Best to Invest?

Should I Invest in Equity to Buy a Car in 5 Years?

Many people invest in equity mutual funds via SIPs to buy a car. This is a bad idea. Equity mutual funds are for long-term financial goals like retirement or buying a house. You don’t have much time in hand if you invest in equity to buy a car.

If you have to buy a car investing in equity mutual funds, stretch the time horizon to 7-8 years. If you want to buy a car, invest in debt instruments with a time horizon of 3 years or less.

See Also: Mutual Funds with High Returns

Invest in equity funds only if you can delay the purchase of the car. For this the financial goal must be flexible. You can afford to delay the purchase of the car.

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