If you invest in fixed deposits, the returns every year could be 6-7%; Mutual funds, on the other hand can give you as much as 12-18%
After months of unprecedented hype, smartphone sultan Apple has taken the wraps off the Rs 1-lakh iPhone X, the most radical update to the iPhone line-up. For many ardent Apple loyalists, the price of the phone does not really matter but is it a smart decision to cough off that amount of moolah for a smartphone? DNA Money tries to find answers.
Who spends Rs 1 lakh - The prudence of buying an iPhone or any other phone for Rs 1 lakh cannot be looked at in isolation. Let's say you save and invest well and have built a good portfolio, then buying an expensive phone is not a big decision. Amar Pandit, founder and chief happiness officer, HappynessFactory.in says, "However, if you have no savings or you are not saving regularly then forget buying an iPhone even buying a Rs 30,000 phone is a stupid idea. The correct question to always ask is whether I have a disciplined savings program in place."
Cars, bikes, jewellery, vacations, clothes, investments, hospital expenses and even home renovations can cost a bomb. The right way to look before spending Rs 1 lakh is how soon can you save it back. "If I am saving 25% of my income, by all means go and indulge yourself. You cannot think of prudence and perfection in everything that you consume. So, have a savings target and spend the rest guilt free if you wish,” added Pandit, a chartered financial analyst.
Value of Rs 1 lakh: An opportunity cost is the alternative given up when a decision is made. So, if you buy an iPhone worth Rs 1 lakh, your opportunity cost is saying where else you can put this money to use.
Ajit Narasimhan, category head - savings and investments, BankBazaar.com says, "Assuming a two-year life span for a high-quality mobile phone, the opportunity cost of investing in a Rs 1 lakh-worth iPhone can be quite high. If you were to opt for a Rs 20,000 phone and invest the remaining Rs 80,000, at the end of two years, you would have anything from Rs 85,000 to 90,000 or more at hand depending on your investment vehicle."
While fixed deposits (FDs) can give you 6-7% returns/year, mutual funds can give you as much as 12-18%. Moreover, a mobile phone is a depreciating asset. At the end of two years, its value would have fell by more than half.
Investments are not the only avenue to factor the opportunity cost. If you use Rs 80,000 to prepay any debt you may have, you tend to save significantly more. For instance, if you prepay Rs 80,000 towards an education loan of Rs 8 lakh at 12% interest at the end of one year, you stand to save Rs 93,000 as interest and reduce your loan tenor by more than a year.
Save tax with Rs 1 lakh: Investing such a large sum of money in a smartphone which will be used by you for just two or three years and devalue over time is not an ideal way to use your money. Chetan Chandak, head of tax research, H&R Block India says, "Therefore, we suggest you three alternative tax-saving investment options which can boost your funds considerably. ELSS, PPF and Sukanya Samriddhi Scheme are three good investment options under the umbrella of section 80C of the Income Tax Act, 1961."
ELSS offers the best return among the investment options under section 80C. If you invest Rs 1 lakh in this scheme, you will save Rs 30,900 in taxes in the first year. You will also get back Rs 1.64 lakh after three years considering a return of 18% which brings your total earning to Rs 95,000. Rs 1 lakh investment in PPF, one of the safest options easily available to individuals, can fetch you Rs 1.25 lakh after three years considering an ROI of 7.8%. Adding the amount you save in taxes in the first year, your total gains come up to Rs 56,000, says Chandak. Sukanya Samriddhi Scheme, whose only drawback is that it is open only for the parents or guardians of a girl child less than 10 years of age, can give monetary gains of Rs 58,000 in three years for investment of Rs 1 lakh.
EVALUATE YOUR BUYS
- If you invest in fixed deposits, the returns every year could be 6-7%
- Mutual funds, on the other hand can give you as much as 12-18%
- The right way to look before spending Rs 1 lakh is how soon to save it back
- Investments are not the only avenue to factor the opportunity cost
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