My age is 47. I have a salary of 2.4L per month post taxes. My savings totals up to 3Cr is cash (PF, fixed deposits etc all included) and stand to inherit another 1CR in cash from parents. I dont have any loans. I have an own house with loans paid for and a car that is 9 years old but good condition. Apart from this i stand to inherit some property (house + land) value of which would be approx 5CR. i have 2 kids - 12 and 15. My elder one will be going for Engineering college in 2 years time. My parents are largely sufficient on their own. I have just 2 major dreams of owning a BMW worth 50L and travelling the world. I work in software industry and worried about my job. But i am confident of doing anything else beyond software if i loose my job. My assumption is 10L for old car, 20L from my savings and 20L loan. Can i buy a BMW?

Ans: While I can try to give some 'gyan' about a luxury car being a depreciating asset and why you should instead focus on saving for buying real appreciating assets or investments, I will not do that here and instead, just try to answer your question mathematically. ;-)

A car that costs Rs 75 lakh today, will cost much higher due to inflation after 10 years. Assuming 6% average inflation over the next 10 years, the cost of the car you mentioned will increase to Rs 1.34 crore. To reach this corpus target, if you invest in an equity-oriented portfolio that generates about 11%, then you need to start investing Rs 46-47,000 monthly starting today and also increase this monthly investment by at least 7% each year (with your salary hikes).

With the current monthly take-home of Rs 2 lakh, this shouldn't be a problem with you.

That said, I would once again mention the fact that right now you are young and hence, you have this cool goal. My guess is that as years pass, you will understand the reason why spending too much on a depreciating asset like a car isn't advisable. :-)

We don't have information about your risk appetite. But assuming that it is at least moderately aggressive, then, you can start investing in a combination of largecap index funds, flexicap/large&midcap funds, midcap funds, etc.

Thanks
Dev Ashish,
SEBI Registered Investment Advisor (Fee-Only RIA)
Founder, StableInvestor.com
Twitter (@Stableinvestor)

Note (Disclaimer) - As a SEBI RIA, I cannot comment on specific schemes/funds that are provided or asked for in the questions in the platform. And the views expressed above should not be considered professional investment advice or advertisement or otherwise. No specific product/service recommendations have been made and the answers here are for general educational purposes only. The readers are requested to take into consideration all the risk factors including their financial condition, suitability to risk-return profile and the like and take professional investment advice before investing.

Ans: ou have a strong financial base with liquid investments of about Rs. 13.6 crores and an excellent monthly income, so you are on a good wicket. Let's see if buying a luxury car makes sense.

Present Financial Situation
Monthly Income
You have a monthly income of Rs. 8 lakh, which shall definitely ensure a comfortable lifestyle.

Investments

Mutual Funds: Rs. 8 crore
PMS: Rs. 4 crore
Provident Fund: Rs. 1 crore
Stocks: Rs. 50 lakh
Cash: Rs. 10 lakh
Assets

Home: Rs. 1.5 crore
Car: Kia Seltos SUV
Insurance Coverage

Term life insurance of Rs. 1 crore each for all family members and parents.
Comprehensive medical insurance of Rs. 1 crore each.
Retirement Planning
Target Corpus
You aim for a corpus of Rs. 20 crore in 5 years. Given your current investments and SIP, this target is achievable.

Monthly SIP
You are investing Rs. 5 lakh monthly. This disciplined approach is excellent.

Luxury Purchase Consideration
Mercedes-Benz Purchase
You plan to buy a Mercedes Benz for Rs. 65 lakh.

Financial Impact

Depreciation: Cars are a depreciating asset. The value of the car will reduce over time.
Maintenace: Luxury cars are expensive to maintain.
Opportunity Cost: This money, if invested, will yield a substantial return over time.
Can You Afford It?
Current Assets
You have ample assets and no liabilities. Your liquid investments are as high as Rs. 13.6 crore alone.

Future Goals
You want to have Rs. 20 crore in 5 years. Your current savings and investments are on track to reach this goal.

Income Stability
Rs. 8 lakh per month gives you a great deal of financial stability. This income can sustain your current lifestyle as well as a whole host of future goals.

Analytical Insights
Gimme Some Luxury
Your sound financial position gives you the wherewithal to splurge a bit, but keep an eye on its impact on the future.

Needs vs. Wants Balance

Needs: Securing retirement and your child's future
Wants: Living life's good life without any financial insecurity
What the Expert Says
As a Certified Financial Planner, I will ask you to consider benefits against costs. You will have to consider the depreciation and maintenance expenses of the car.
Reinvest the Amount
Now, think of reinvesting Rs 65 lakh. It can generate better returns and provide additional security to your retirement corpus.
Balanced Approach
You can also look at a balanced approach. Part of the amount can be used for luxury and the rest for investments.

Final Insights
You have built up a robust financial foundation. With assets and no liabilities, you can afford to buy a luxury car. But do consider the long-term impact on your finances. The balancing act between luxury and financial security will give you a comfortable future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Let’s first look at the assets and liabilities you currently have:

Provident Fund (PF): Rs 45 lakhs
Fixed Deposits: Rs 50 lakhs
Mutual Funds: Rs 10 lakhs
National Pension Scheme (NPS): Rs 6 lakhs
SBI Elite Scheme: Rs 10 lakhs
Axis policy: Rs 5 lakhs (paying Rs 1 lakh per year for 10 years)
SBI Mutual SIP/Insurance: Rs 6 lakhs
Plot of Land: Rs 50 lakhs
Home Loan: Rs 9 lakhs (EMI of Rs 25,000 per month)
You also mentioned that you have an additional Rs 10 lakhs which you are considering for a down payment on a new car worth Rs 27 lakhs.

This is a very good base of financial assets. Let’s assess whether buying a car right now is a wise decision based on your current financial standing and future needs.

Evaluating the Car Purchase

Buying a car is often an emotional decision, but it’s also a big financial commitment. You’re considering a down payment of Rs 10 lakhs for a car worth Rs 27 lakhs. Let’s break down the key factors:

Liquidity Impact:
You plan to use Rs 10 lakhs from your available funds for the car down payment. This amount is a significant chunk of your liquidity. Reducing your liquid cash could make it harder to cover any unexpected expenses.

EMI Commitment:
If you finance the remaining Rs 17 lakhs, your EMI could be between Rs 35,000 to Rs 40,000 per month (assuming a typical car loan tenure and interest rate). This would add to your current EMI of Rs 25,000 for the home loan, bringing your total EMI commitment to around Rs 60,000 to Rs 65,000 per month.

Total Monthly Outflow:
You may want to consider your total outflow, including living expenses, EMIs, and any other financial responsibilities. It’s crucial to ensure that your monthly cash flow can comfortably accommodate all these commitments without stretching your budget.

Asset Depreciation:
A car is a depreciating asset. Over the years, its value will decline, and it will not contribute to your wealth-building efforts. Meanwhile, your existing investments like mutual funds, PF, and NPS will continue to grow in value.

Alternative Use of Funds:
The Rs 10 lakhs down payment could alternatively be invested in a high-return investment option. Over time, this could help you achieve long-term financial goals more effectively.

Assessment of Current Loan Situation

You currently have a home loan of Rs 9 lakhs, which is manageable. The property’s value (Rs 1.2 crore) far outweighs the loan, which is positive. However, adding another loan in the form of a car EMI will increase your monthly financial burden.

At present, you are paying Rs 25,000 per month for the home loan. If you go for the car loan, the total EMI commitment will rise significantly. It’s important to ask yourself if you are comfortable with this higher commitment.

Insurance Policies: Reviewing SBI Elite Scheme and Axis Policy

Both the SBI Elite Scheme and Axis Policy require attention. These are investment-cum-insurance products, and such products often do not deliver the best returns. They also come with higher costs and offer limited flexibility in terms of withdrawals.

SBI Elite Scheme: You have Rs 10 lakhs invested here. While it may have some insurance benefits, the returns might not be competitive compared to mutual funds or other pure investment products.

Axis Policy: You are paying Rs 1 lakh annually for this policy. Over 10 years, you will have contributed Rs 10 lakhs. It’s important to check if the returns are aligned with your goals.

Consider reviewing both policies with the help of a Certified Financial Planner to assess if continuing them is beneficial. If they are underperforming, you may want to consider surrendering them and reinvesting in more flexible and higher-return instruments like mutual funds.

Asset Allocation and Diversification

You currently have a good mix of assets, including:

Fixed Deposits
Provident Fund
Mutual Funds
NPS
Real Estate
However, it’s important to ensure that your asset allocation aligns with your risk tolerance, liquidity needs, and future goals. For instance:

Fixed Deposits:
While safe, they offer lower returns compared to mutual funds or equities, especially in the long run. As inflation rises, the real returns on fixed deposits diminish.

Provident Fund and NPS:
Both these assets offer long-term growth but have limited liquidity. They are ideal for retirement planning, but you cannot rely on them for immediate needs like the car purchase.

Mutual Funds:
Your mutual fund investments of Rs 10 lakhs are valuable growth assets. However, you could review their performance and consider reallocating to more actively managed funds for better returns.

Car Purchase: Is It a Risk?

To answer your direct question: Is buying the car right now a risk? Based on the analysis, here’s what I think:

Monthly EMI Burden:
The new car EMI will significantly increase your monthly outflow. It’s essential to ensure that you can comfortably afford this without compromising your savings or future investments.

Impact on Liquidity:
The Rs 10 lakhs down payment will reduce your liquid reserves. You still have FDs, but those might be tied up for long periods or may not give the best returns if broken early.

Wealth-Building Impact:
Investing the Rs 10 lakhs in growth assets like mutual funds could help you build wealth faster. A car, being a depreciating asset, will not contribute to wealth creation.

If the car is a necessity and you have carefully assessed your cash flow, you could go ahead. But if it’s a desire that can wait, consider postponing the purchase. Instead, focus on building more liquid wealth to cover future goals like your home loan repayment or emergency needs.

Final Insights

Buying a Rs 27-lakh car is a significant financial decision. While you have a strong financial base, the added EMI burden and liquidity impact should be considered carefully.

Your existing investments are solid, but there’s room for optimization. I would recommend revisiting your insurance-cum-investment policies. A Certified Financial Planner can help review these and guide you toward better investment strategies.

Consider delaying the car purchase if it’s not urgent. Use the Rs 10 lakhs for investments that could offer better returns over time. This way, you’ll strengthen your financial position and have more flexibility for future big-ticket purchases.

In short: Evaluate your monthly cash flow and risk tolerance. If you're comfortable with the increased EMI, go ahead. But, if you feel stretched, it’s better to wait and focus on building more liquid assets.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment