Which category of funds will help you buy your dream car with Rs 15,000 SIP?

There are broadly three categories of funds available in India. One that purely invests in equity, another in fixed income securities, and lastly, the one that invests in both equity and debt.  Again, there are sub-asset classes within these broader categories.   

Now, the question is, which funds from these categories will help you in achieving the goal of buying your dream car? To answer this, we first need to take into consideration certain things such as, the price of the car that you wish to buy in today’s terms, inflation, and the expected rate of return on your investment. Let us take an illustration to understand it better. Let us assume that you want to buy a hatchback or sedan in the next three years, which is currently priced at Rs 5.6 lakh and its prices increase at the rate of 5 per cent. Having said that, you would require around Rs 6.5 lakh at the end of three years.

If we look at the 3-year category annualised returns of equity, debt, and hybrid funds, it is at 14.8 per cent, 6.6 per cent & 9.01 per cent, respectively.  Doing SIP of Rs 15,000 in these funds would help you to accumulate Rs 6.74 lakh, Rs 5.95 lakh, and Rs 6.17 lakh, respectively.  Therefore, only the equity category will help you to attain your goal of buying a car that would cost Rs 6.5 lakh, three years down the line.   

You should understand that investment in equity is a risky proposition as returns from equity investment are volatile for a shorter duration and hence, after three years, you may or may not get that amount. Therefore, you need to invest in debt or hybrid funds that are more stable; however, they’ll give you lower returns. Therefore, either you have to increase your SIP or delay your goal by a few years. In case you decide to invest in a debt fund, and everything else remains the same, then you have to increase your SIP amount by Rs 1,400 or Rs 16,400 every month. In case you decide to delay your goal, it has to be extended by four months.    

So, we suggest you rather delay your goal by four months and invest in debt funds to fulfill your goal.