Plan And Save For Your International Vacation With Short Term Mutual Fund Schemes

Stressful modern lives have made planning for a rewarding vacation almost a necessity. The working population today is ready to make thoughtful contributions to fund holidays just like towards long-term needs of housing or retirement income.

Like investment towards achieving any financial goals, you can use mutual funds to plan your dream international vacation, rather than postpone it. With monthly contributions towards these schemes, based on your time horizon, you can go on that European holiday you have been dreaming of.

Why choose mutual fund schemes to plan your vacation?

Credit card interest rates or personal loan interest rates (your best loan options for a vacation) can go as high as 20%. Wouldn't it be wiser to make monthly transfers towards saving for a vacation using SIPs (Systematic Investment Plans) of mutual fund schemes than pay EMIs on credit?

Not only will a loan increase the overall cost of your holiday, but it will also be difficult to manage any unexpected expense that could arise after you return home. Any defaults towards an EMI could also hurt your credit score.

Further, considering current bank interest rates, you will stand to get higher returns from mutual funds than a bank recurring deposit.

How to plan for your international vacation with mutual fund schemes?

The initial steps in your planning would be to decide when and where do you wish to go on your holiday.

Budget planning

Decide on a budget that takes into consideration expenses to be incurred on conveyance, stay, food, shopping, tourist activities, travel insurance, forex and other unexpected costs that could arise.

If the location of your choosing is expensive and has high visa and tour guide charges, you will also need to take that into consideration.

You will also need to consider the change in rupee's exchange rate for an international vacation. Any depreciation in the currency's value could hurt your estimated budget. Factor-in 15% of the budget towards such fluctuations.

Fund allocation

Vacations are usually considered as short to medium-term financial goals in investment circles. This means that you cannot risk investing in equity (stocks) or equity-related funds as they are highly volatile in less than 18-month time-frames.

Further, travel operators often expect an advance payment, which means you will have to be partially prepared with the necessary funds before you make any bookings. Liquid funds that allow you to withdraw money with least tax implications will be helpful.

Short-term mutual funds or ultra-short mutual fund schemes invest mainly in debt securities with a duration between 6 to 12 months and come with liquidity benefits.

Mutual fund houses have SIP calculators that help you get a rough idea on how much you will need to set aside every month to aggregate your desired amount at an expected rate of return.

According to investment advisors:

• If you plan on taking a vacation 3 years to 5 years from now, you can put 90% of your savings in a month towards debt-based funds and 10% on equity schemes. You can also opt for balanced mutual funds instead.
• If your vacation is less than a year away, ultra-short duration schemes like Franklin India Ultra Short Bond Fund are suitable.
• If your vacation plans are one to three years away, short term mutual funds will provide sensible returns.

Systematic Transfer Plans

With a Systematic Transfer Plan, you can shift a fixed amount from equity funds to ultra-short debt funds when you are closer to your travel date, to protect your allocated funds against market risks.

Risks

Mutual funds are subject to unexpected market risks and can be highly volatile in the short-term. Avoid fund schemes that take higher than usual risks to generate higher returns than its competitors. Check the fund's historic performance and read all fund-related documents carefully before you invest.

Conclusion

Saving for a vacation will help you be prepared for any unexpected changes in your regular life. With mutual fund plans, you can save systematically to fulfill your dreams. Be flexible with your time frame to avoid shortcomings.