Most of us have a car of our own and it is necessary to replace the car over a period of time. Initially the maintenance cost of the car is very negligible but over the years, especially after the 4th year, you need to spend considerable amount in maintenance of the car.
However the maintenance cost will accelerate if you do more kilometers. For example a set of tyre replacement becomes necessary after say 40 k kilo meter. The earlier you run up the distance, the earlier your maintenance cost goes up
Depending on the distance one does, replacement of car needs to be planned. If one were to do 500 -700 km a month ie 6000 per annum, a replacement can be planned in about 5 to 7 years. This is suggested for personal use and not for vehicles which are put to commercial use. The method and yardstick are very different.
Also the moment you buy your car it depcriates in value. The resale value comes down faster than the depreciation.
Now with the NGT ( New Green Tribunal) banning vehicles beyond 10 years, after 5 years the resale value will drastically come down. You may not even find buyers for the car.
Therefore one needs to plan funds for buying the car. Let us assume, in the example given above, that we need to replace after 40 k, at 6000 km per annum, we replace the car after 7 years.
If you had bought a Hyundai I 20 in 2008, you would have paid 4.8 lacs. Normally with a 15% depreciation using a straight line method, in 7 years the book value becomes zero.
15% of 4.8 las is 72k per annum. or 6 k per month.
Today’s ex show room price of I 20 is 5.65 lacs
If you had started a SIP in Sundaram Select Mid cap fund, for 5 k per month or 60k per annum over a 7 year, you would have invested 4.2 lacs. Guess what? You could have earned anywhere between 6 .5 lacs to 10 lacs depending upon the year of starting the SIP and this would have helped you not only replace the car without any financial difficulty, but also helped you upgrade your car to the next level. See table below.
There are some cars which have become costly many times. For example the cost of Toyota Innova which was 8 lacs in 2005 is 26 lacs today.
See the trend of prices by clicking on this
If you had started a SIP for 6250 per month for 10 years at 75 k per month the value will be today 19, 58, 773 today. in 10 years time. ( It is assumed that it is invested in Sundaram select Midcap fund)
There are many more funds which have given very good returns and I just chose this fund for illustration.
Please note that I have chosen the period of SIP so that it ends in the calendar year, as people prefer to buy a new model on new year or thereafter considering that year of make plays a significant role in resale value.
There many ways where you can use SIPs and other options to reach your Goals.
Do contact me for any assistance or help
Thanks & regards