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Mutual Funds For Your Vacation

Ready to create your own travel fund? Learn how much to invest, in which type of mutual fund & for how long. Read this article for all the hacks to plan your dream vacation with mutual funds.

The aspirations and dreams that you may have may not be fulfilled with the funds at your disposal. Different people have unique dreams, and although goals differ, there is a common element in all. You need funds to fulfil them. Some people make plans to send children abroad to study, while others have objectives of going on tours and holidays. It's not a good feeling you get when you have to curb your holiday plans for a lack of funds. Hence, you must start planning early and set up a travel fund to meet your vacation goals. How do you do this? Your savings may not be adequate to take you on your dream vacation. 

With attention to financial planning, you can meet your holiday goals by investing your capital wisely. Several investment channels exist today, but mutual funds are viewed as one of the best vehicles to fund a holiday.  

Figuring Out the Target Amount to be Saved for the Vacation 

Before you make up your mind about any one of the best vacation mutual funds to choose, you may want to consider your vacation plans and act accordingly. For instance, you should think of the following: 

  • Identify the Place - The first thing you must do is decide on the place/country that you would like to visit. Thinking of the destination and associated costs is important. 
  • Note the Total Cost - You may have to do some research after you have decided on the destination, and find out how much the vacation will cost you (and your family). You must consider inflation, and the longer you postpone your trip, the more it may cost you. 
  • Realistic Dates - Establish realistic dates for your departure and arrival. 
  • Amounts to Save - Finally, you should decide how much you can save (from a monthly income source) to meet the financial goals of your vacation. 

Once you have sorted out the above details, you can consider your best mutual fund for vacations. You should find one that gives you appropriate returns on your capital to finance your holiday by a certain time. For example, in case you and your spouse wish to travel to Europe for ten days, the cost presently, may work out to Rs. 3 lakh (excluding other expenses like shopping). Let's say you wish to go after 2 years. If you consider that inflation is to be added at 5%, then your basic trip will cost you Rs. 3.35 lakh. Now if your mutual fund has the ability to generate a 9% return per month, you need to invest at least Rs. 21,000 each month. 

Why Mutual Funds are the Right Choice 

At first sight, you may assume that mutual funds may not be suitable to collect the capital you need to create a travel fund. This may be so because you think they might generate wealth over a long period, more than necessitates your travel needs. Instead, you might reconsider in favour of a personal loan for quick funding. The whole debate of EMI vs. SIP enters the picture here. Nonetheless, in order to fund your travel expense, taking a loan may not be the right route due to the following reasons: 

  • Personal loans can come with high rates of interest, up to 20%.
  • Your finances will be eroded in making loan repayments.
  • In the event that you default in repayment, your credit score gets negatively impacted. 
  • If you cannot repay loans in full and on time, you may find yourself in a debt trap. 

On the other hand, setting up a travel fund with a mutual fund in mind can be the ideal move, and you can invest in a SIP (systematic investment plan) through mutual funds. Short-term mutual funds provide a good way for you to make gains in the short run, without the risk of a debt trap.

The Type of Mutual Funds to Review 

While choosing a mutual fund investment with a focus on travel plan costs to be met, you may wonder which type to opt for. Higher returns in mutual funds are achieved with longer tenures (in excess of five years). However, your holiday plans may be below this term. Therefore, you can invest through a SIP and create vacation mutual funds: 

  • Short-term Funds - Mutual funds for the short term are great for investments to be made over a three-year time span. You get annualised returns of about 8% on these funds. 
  • Ultra Short-term Funds - If your time horizon is less than a year, these funds are perfect choices. Returns of approximately 7% are generated with such funds.
  • Balanced Advantage Funds - With annual returns of nearly 9%, these funds are adequate to collect a corpus over a three-year timeframe. Moreover, they come with a relatively lower risk. 

Saving money for a travel fund is different from saving to accumulate a corpus for longer terms. This is because your travel plans require a short-term to medium-term approach. Furthermore, you cannot take risks with this investment. The aim of setting up a fund should be to preserve capital, and yet these should give you a 50% yield over your capital. Moreover, you shouldn’t pick funds with stringent terms in which withdrawals may mean penalties. The good part of saving for your trip is that you get certain debt funds that are great for the requirements you have. 

Conclusion 

There are a range of mutual funds for the short haul that you can consider to fulfil the aims of a travel fund. Several people take the mutual fund route to save up and build wealth in order to go on any kind of luxury vacation. Additionally, if you have a plan in mind for the future, you can start organising your capital for mutual fund investments early. That way, you enforce discipline in your financial goals and can save more with a longer horizon. As the time for your vacation approaches, you can activate the “Systematic Transfer Plan”. Even if you have your money invested in equity funds, a set amount will be transferred to your ultra short debt funds so you can ensure you save with minimal risk. 

FAQs

  1. How do I collect a corpus for a vacation?

The best way to have a fund that you can use for the cost of your future travel is to invest in a mutual fund for vacations. You can save and invest a fixed amount per month in a mutual fund of your choice and collect money appropriately. 

  1. Is a SIP a good way to get funding for my future vacation? 

A SIP, or a systematic investment plan, is an ideal way to allocate funds in a systematic and organised way, every month, so that you can ultimately have a corpus that suits your travel requirements. Investing in a SIP through mutual funds in debt or equity can aid you to meet your financial goals. 

  1. Is it a good idea to take a personal loan to fund my vacation?

More than a personal loan, it is better to invest in a mutual fund. A personal loan may not be a good idea as you have to repay the loan, and if you miss even a  single instalment, this has a negative impact on your creditworthiness. Besides this, a personal loan, if you cannot repay it for any reason, can get you stuck in a debt trap. 

  1. What are the types of mutual funds to review when trying to create a travel fund

You can choose from ultra short-term funds, short-term funds, or balanced advantage funds to review while trying to create a travel fund. 

  1. What factors should you consider when deciding how much to save in a travel fund?

You must consider your destination, realistic expenses, your time horizon for saving, and the total potential vacation cost. 

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