A ₹50,000 mutual fund SIP can get you a Mercedes-Benz. But after how long?

But what if an investor wants to buy a Mercedes-Benz and is willing to invest with discipline. How long a ₹50,000 SIP will take to reach the target corpus?

First, let us understand the cost of the Mercedes-Benz C-Class (C 200 version 1496 cc, petrol, automatic (TC), 201 bhp). As of today, the ex-showroom price of this car is around ₹55 lakh. However, by the time this car hits the road, you would have paid more, including registration charges of ₹5.75 lakh, insurance premium of ₹2.25 lakh, and Tax Collected at Source (TCS) of ₹55,000. Hence, the on-road price of this luxury car in Delhi will be around ₹64 lakh.

Assuming, you can make a mutual fund SIP investment of ₹50,000 monthly, you can buy a Mercedes worth ₹64 lakh in seven years. This is assuming that the investment has grown at around 12% rate of return in an equity mutual fund.

A moving target

The critical thing you must consider here is inflation. The cost of the Mercedes-Benz C-Class (C 200 version) may rise over the next seven years because of inflation. So, by the end of the seventh year, you might be unable to purchase the same model by investing ₹50,000.

Amol Joshi, founder of Plan Rupee Investment Services, said, “A ₹50,000 SIP per month for seven years at 12% CAGR will create a corpus of ₹65 lakh. However, the cost of the luxury car is likely to rise over the years, as well. If the car price inflation is 5%, the price will be close to ₹90 lakh in 7 years. To meet this outgo, your SIP needs to be ₹70,000 instead of ₹50,000.”

“The way we account for inflation while calculating retirement corpus, similarly inflation needs to be accounted for any major purchase or goals several years away. And lastly, remember that luxury car purchase is only one of the financial goals. Make sure that you have made adequate provision for other important goals like; education corpus for children and towards your retirement kitty,” said Joshi.

Vishal Dhawan, certified financial planner and founder of Plan Ahead Wealth Advisors said, “It is likely that when you are planning for the purchase of a high-value asset, there will be inflation on the price of the asset, as well as the cost of maintenance and upkeep of the asset, so it is important to factor in that as well when you are investing toward purchasing that high-value asset.”

Mint take

Like any other car, a luxury car is also a depreciating item. Buying a luxury car is a matter of status. Also, such investments could require large investment commitment. As mentioned earlier, there are regular maintenance and upkeep costs that also need to be factored in.

Make allocations towards such high-end purchases only after taking care of other financial goals such as retirement corpus, housing requirements, children’s education, their marriage, your medical and healthcare corpus, etc.