Want to buy a car? We tell you how to save up for it

In terms of liquidity, a SIP is better when compared to Recurring Deposit (RD). SIP can be closed and the money can be withdrawn without any penal charges.

One of the easiest and safest way of investment, is Systematic Investment Plan (SIP). Photo: Pixabay

Who doesn't want to own a dream car as soon as one starts earning.

If one start investing as soon as they start earning, say by the age of 21 or 22, one can fulfill the dream.

To begin with, one of the easiest and safest way of investment, is Systematic Investment Plan (SIP).

In a SIP, an investor has to deposit a small sum every month or every quarter and the amount of investment can be as low as Rs 500. If you choose a mutual fund scheme and invest in SIP, based on the plan that you have opted for they will allocate your money in debt or equity.

Ajit Narasimhan, Category Head - Savings and Investments, BankBazaar.com, said, "One can start an SIP with a much lower but regular investment which can be as low as Rs 500 a month. One can even consider daily SIP of Rs 100.

According to Bankbazaar.com, the returns generated by SIP mutual funds have been around 12% to 22% in the last 5 to 10 years.

The returns from a SIP for mutual funds is dependent on debt and equity markets and is also based on the fund scheme chosen by the investor.

In terms of liquidity, a SIP is better when compared to Recurring Deposit (RD). SIP can be closed and the money can be withdrawn without any penal charges.

"Also, whenever prices go down, investor can purchase more units. This way one can eventually average out cost of investment due to fluctuating price using SIP. So, with little sense of discipline towards investment and savings, slowly but steadily one can work towards bigger goals.”

Narasimhan, while giving an example said, "Just to give an idea, with a monthly saving of 10 k and with expected rate of return as 10%, one can save 10 lakh in 6 years."

Here's we show you with the same investment amount, but different interest rate will help you buy your first car.

Starting with Rs 5000 per month for six years, you can get return of upto Rs 4.9 lakh if the expected interest is 10%, Rs 5.3 lakh if the interest is 12% and Rs 5.9 lakh if the interest is 15%.

Clearly, even 2% rise in the interest rate can add Rs 40,000 in your return.

Now, suppose, if you double the amount, say Rs 10,000 for six years, in the first case when the interest is 10%, you will get return of Rs 9.9 lakh, with the interest at 12%, you will get Rs 10.6 lakh and with 15% interest, you will get Rs 11.7 lakh.

With Rs 12 lakh in hand, you can surely buy your first dream car and even go for "luxury" car by taking vehicle loans. Moreover, SIPs is also a safe option if you are looking for more than 10 years.

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