Investing for vacation: Financial planning guide to help you travel to your dream destinations

Want to fulfil your wanderlust? Just as with other financial goals, you can create consistent savings and investment plan to fund your travels.

 Financial planning guide

Travel has become a priority for Indians. It ranks high on the aspiration list, and these days it is almost as important as buying one’s own house or saving for a comfortable retirement. Whether you want to break away from the mundane for a short while or tick dream destinations off your bucket list, you have to be financially prepared. 

Just as with other financial goals, you can create consistent savings and investment plan to fund your travels. Read on for a quick financial planning guide that can set you on the right path to fulfilling your wanderlust.

1. Map your travel timeline

The first thing you need to do is identify how many trips you intend to make in the foreseeable future. Some of these journeys will be super-short jaunts out of town, others may see you exploring the length and breadth of India, and yet others could be international trips where you soak in a different culture. Map the rough timelines for when you want to travel so that you can save for each milestone accordingly.

Also Read: A Guide To Raising Funds To Make Your Dream Vacation A Reality

2. Identify your savings goal

Depending on when you want to travel, the destinations will have to be marked as short-term or medium-term goals. Identify all cost heads involved - not just limited to travel and stay but other expenses as well, such as meals, local transfers, entry fees, shopping, etc. For international travel, you would also need to account for another 3%-5% towards currency conversion and foreign currency transaction charges.

3. Create a savings corpus

Figure out the amount of money you can put aside each month towards fulfilling your travel plans. If possible, open a separate account to which you can transfer this amount on a monthly basis. Later on, you can manage your travel expenditure from this account for better budgeting and record keeping.

Also Read: Create A Corpus Of Rs 1.91 Crore By Investing Rs 5000 Per Month In This Scheme

4. Embark on goal-based investing

Letting your funds idle in a savings bank account does you no good. The return (interest) accrued on a savings account will not be enough to pay for a meal at a fancy restaurant, let alone generate surplus funds! The ideal approach is to invest in mutual fund schemes via systematic investment plans (SIPs). 

Mutual funds are of different types and come with varying risk exposures. Considering that you would be investing for a vacation to be taken in the near future, mutual funds with high equity exposure are not suitable vehicles. Here are some options you could consider for various time frames.

  • For trips within 6 months: Liquid funds

Liquid funds invest in short-term money market instruments, involve very low risk, and (as the name suggests) are as liquid as the money in your bank account. There is no lock-in period, and redemptions land in your account the next day. More importantly, these funds deliver 25%-30% higher returns compared to a regular savings bank account.

  • For trips 1-1.5 years from now: Conservative hybrid funds

Conservative hybrid funds invest 75%-90% of the corpus on debt instruments, while the balance is usually invested in blue chip equity. These funds tend to offer slightly higher returns than pure debt products owing to the equity component. 

  • For trips 2-3 years down the line: Dynamic asset allocation funds

A lot can change in 2-3 years. A dynamic asset allocation fund makes investments based on market trends and manages debt and equity exposure accordingly. When the markets are overvalued, the fund books profits and moves towards debt to prevent capital erosion; and when the markets are undervalued, it seeks upside on equity opportunities.

Also Read: Different Types Of Funds Available Under Mutual Funds 

Conclusion: If you are young and unsure how to invest in mutual funds, speak to the relationship manager at your bank or advisory. However, do make it a point to conduct your own due diligence before you commit to an investment plan.


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