Ask Mint Money | It is advisable to take equity exposure via SIP investments

I am 30 years old and my monthly income is Rs1.5 lakh. I want to buy a car and, though I can pay the entire amount with my savings, I want to know if equated monthly instalment (EMI) route is better. Also I want to invest for my child’s education and marriage, for which my time horizon is 20-25 years. I can invest Rs.20,000 every month. Where should I invest?

—Sunil Jayant

The question whether to buy a car by paying cash or taking a loan is not as simple as it sounds. In case you don’t have enough cash, it becomes easy to answer as you don’t have an option but to go for a loan. Also, any future need of money can also help in deciding the same.

But in your case it is not applicable as you have enough resources. For you the determining factors can be whether your company has a “company car lease policy”. If yes, then opting for the same is recommended as the car is purchased in the company’s name and EMIs are adjusted from salary thereby making salary structure more tax-efficient. Further, check if there are special deals in the market which makes going for the loan more attractive. If not, then taking a loan will not give you any advantage as you will be paying a high interest on the loan and your cash surplus will not be able to deliver you an equivalent interest amount.

Your child’s education and marriage are long-term goals. Hence, you can take some risk subject to your risk appetite. It is advisable to take equity exposure by investing regularly through systematic investment plan (SIP) in asset classes such as large-cap equity funds, multi-cap funds, hybrid equity, monthly income plan (MIP), dynamic and short-term debt funds.

In the large-cap space you can pick ICICI Prudential Focused Bluechip Fund and Franklin India Bluechip. For multi-cap funds, go for Canara Robeco Diversified Equity fund and HDFC Top 200. In case of hybrid equity, you can opt for HDFC Prudence and HDFC Balanced. In case of MIP, pick Reliance MIP and in the dynamic debt space, Birla Sun Life Dynamic Bond Fund and Templeton India Short Term Income Fund are good options.

Often investors while doing most things correctly miss out on insurance. They end up believing that the old insurance policy they bought will suffice. This is a mistake and may sometimes prove costly. In today’s scenario when inflation is in the headlines every day, you need to ensure that you are adequately covered. As a thumb rule your insurance cover should be 7-8 times your annual income (net of loans). In addition, you should also have a health insurance policy. The rationale behind insurance is to ensure you run your financial plan smoothly in case of any contingency.

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