7 Short-Term Plans to Fund Your Next Vacation

The easiest way to build a corpus for your upcoming vacation is to put your money into a savings account. While you can open a new saving account dedicated to this purpose, some banks allow you to segregate money into different pockets within the same account. The main drawback of a savings account is the low interest it offers.

With slightly higher interest rates than a savings account, FDs or RDs offer fixed returns, making it easier for you to plan for your vacation. While FD tenures range anywhere between 7 days to 10 years, the tenure for an RD ranges from 6 months to 10 years. Be sure to pick the right tenure for your needs, or you might end up paying a penalty on premature withdrawal.

Liquid mutual funds are ideal for investors looking to park their savings for a few weeks or months. The schemes invest your money in debt and money market instruments with a maturity period of up to 91 days.

If you want to generate slightly higher returns than liquid funds and your vacation is 3-6 months away, ultra short-term funds can be a good choice. These low-duration funds invest in debt and money market securities.

If your vacation is a few months to a year away, you might consider investing in arbitrage mutual funds. These schemes focus on arbitrage opportunities in the equity spot and derivatives segment to generate returns for their investors. 

Hybrid funds are a combination of equity and debt investments. Debt-oriented hybrid funds have between 75-90% of their portfolio invested in debt instruments and balance in equity. The debt portion is generally invested in fixed-income securities, making them a good choice for an investment horizon of 3 years+. 

If you are planning a vacation 3 years from now, you could consider equity mutual funds investing primarily in large-cap companies. They carry lower risk compared to other types of equity mutual funds, and also come with greater return-generating potential than debt instruments.