The Road Less Travelled To Your Dream Car—SIPs

Dreaming of a Rolls-Royce? You’re not alone. The iconic vehicle represents the pinnacle of luxury and success that many aspire to experience. While there can be no end to what a dream car can be, how does one turn this dream into reality? One effective way is through Systematic Investment Plans, or SIPs.

In India, buying a car often transcends pure practicality and is simply, an emotional decision. “Car buying is like that. A lot of times, it’s not a practical one. Otherwise, sports cars and fancy cars wouldn’t sell in this country," said Renuka Kirpalani, consulting editor at Autocar India and Mashable India.

This is what often drives people to splurge on high-end vehicles despite practical considerations. And the allure of luxury cars, like the Rolls-Royce, is growing among Indian consumers. According to a 2023 survey by Autocar India, 42% of luxury car buyers in India are using innovative financial strategies, including SIPs, to own these vehicles. This trend reflects a broader shift towards disciplined investment methods to meet long-term goals.

To understand how SIPs can help one achieve their luxury car dreams, here is a look at the math. Director of Etica Wealth, Nikhil Kothari shared an example from his own life, saying that he was inspired to start an SIP by an educational movie back in 2011. “My brother and I decided to use SIPs to buy a Rolls-Royce, just like in the movie. We started with a basic Rs 10,000 per month and planned to increase the SIP amount by 25% annually, with an average 15% return on our investments."

Eventually, Kothari was able to step up his SIPs by 35%, and due to a great run in the market, got an 18% return. This put his accumulated corpus at Rs 9 to 12 crore in 16-17 years of starting his SIP.

"You can dream for a dream car, but start SIP today itself," he said.

Consistent SIP investments can yield returns significantly higher than traditional savings accounts or fixed deposits, especially over long periods, according to a 2023 report by the National Institute of Securities Markets.

While SIPs offer a systematic approach to saving, taking out a car loan is another option. “If you are a salaried employee and taking a loan at a rate of 9.5% to 10%, but your investments aren’t yielding more than 11.5%, then taking a loan might not make sense. You’d be better off using your capital," Kothari said.

Conversely, if a working professional uses a car for business, a car loan might be more advantageous due to tax benefits. “If you are a professional who can claim a tax exemption on interest and depreciation, then a car loan might be beneficial,” he said.

“Whether you choose SIPs or a car loan, it’s about achieving your goal. Brands like Mercedes are aware of this and offer financial plans like ‘Star Agility’ to make luxury cars more accessible. These plans allow for step-up payments and offer flexibility, which can be advantageous," said Kirpalani.

However, SIPs have a clear benefit over loans as they avoid the burden of interest payments and provide a more disciplined savings method.

However, before taking off on an SIP journey towards purchasing a dream car, ensuring a solid emergency fund is important. Financial experts recommend setting aside three-six months’ worth of expenses in an accessible account. Only about 30% of Indian households have an adequate emergency fund, according to a recent Reserve Bank of India survey.

It’s also important to be aware of market volatility. While SIPs historically offer better returns compared to fixed deposits, market conditions can impact overall performance, as highlighted by a 2023 report by Securities and Exchange Board of India.

Owning a Rolls-Royce, or any dream car, might seem like it's out of touch, but with disciplined SIP investments and thoughtful financial planning, it can become achievable. By starting with a manageable SIP amount, increasing it annually, and leveraging the power of compound growth, one can build a substantial corpus over time.