If you really want to spend, liquidate profitable investments but shy away from unnecessary loans
Angad Menon, a resident of Mumbai is planning on buying a 42-inch TV this festive season. He was told by many that festival season is a good time to buy, thanks to the offers from consumer durable companies.
But he does not have enough liquidity at hand. The TV will cost him Rs 45,000 – ready cash that Menon does not have at this moment in spite of cutting corners for months.
Many others like Menon want to make purchases during festival times. But this year, the absence of any increment or bonus from most firms and not to forget rising monthly expenses, due to inflation has left many people in trouble.
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Financing your big ticket purchase this festive season
Obviously, many are not in the mood to make any significant purchases. People aren’t taking loans either to fund purchases. Ram Sangapure, GM-retail banking, Central Bank of India says that this festive season there has been a tepid response to auto and home loans. “Instead people are taking personal loans to fund their day-to-day expenses. High prices and expectations of a further slowdown have led to people postponing bigger purchases like homes or cars,” he says.
Vijay Sales, managing partner, Nilesh Gupta says that there has been a shift to people buying big ticket appliances to smaller ones like mobile phones and tablets and so on. “People are postponing the big ticket purchases this festive season and saving money,” he adds.
So if you really want to buy that TV, what do you do?
For purchasing consumer durables, like how Angad is planning on buying a TV, instead of taking loans, you can explore the interest equated monthly installment (EMI) option. You may have to pay two-three EMIs upfront as down payment, and some small amount as a processing fee. As for gold, given the high price of the metal (Rs 31, 090 for 10g), you are better advised to delay the purchase, unless absolutely necessary.
Say if you want to buy a car. This festive season, 30 new cars are slated to make their debut. You might have had your eye on one of these models. So how do you go about planning your finances for this purchase?
Pralhad Walve has his eyes on the new Volkswagen UP. The car will cost anywhere between Rs 3-4 lakh. He does not plan on taking a loan as he says that he cannot afford the additional expenses of EMIs.
Instead he says that he will break his investments in his fixed deposits and direct equity portfolio. “I have made a good amount of profits in my equity portfolio. I will also be getting my Diwali bonus.”
Unlike many other people, Prahlad has an extra source of income. He changed his job three months back and has got gratuity money from his previous employer. He also plans to withdraw his provident fund money. He is single and says that spending the money on a car is not a frivolous expense. All of this put together he says will help him get that car.
So, for those who are looking at making big ticket purchases like Prahlad, can look at liquidating their investments in which you have made profits.
Amar Pandit, a certified financial planner advises one to take a good hard look at their finances and their ability to maintain and paying capacity before taking that decision.
Investments can always be built again. Opting for loans means an additional debt burden that could derail your other finances.
While choosing instruments to liquidate, avoid those linked to specific goals like retirement or children's education, says Anil Rego, certified financial planner. "You can, instead, liquidate any wrong investments or those in which you have made a killing," he explains.
Equity markets have risen considerably for the past few weeks see if this has given a boost to your investments. Take a look at your equity fund fund and direct investment portfolios and see where you have made good enough profits to exit.
Breaking your FDs, remember will cost you. There will be a penalty in case of premature withdrawal. And if you have got that Diwali bonus, then add to your kitty.
After you have arranged for these finances and you still fall short for your big ticket purchase, then consider taking a loan. Several banks have cut rates on home and auto loans by 25-50 basis points. Make sure you have the funds to pay for the down payments.
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