Jan 2023
4 mins read

7 Short-Term Plans to Fund Your Next Vacation

According to a recent study, travelling frequently for leisure has a significant positive impact on your happiness and wellbeing1. However, travelling can be expensive and requires effective financial planning and budgeting.
Here are 7 short-term instruments with high liquidity that can help you fund your dream vacation:


Savings Account

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.

point 1

Short-term Fixed Deposits (FD) or Recurring Deposits (RD)

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.

point 2

Liquid Funds

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.

point 3

Ultra Short-term Funds (3-6 months)

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.

point 4

Arbitrage Funds

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. 

point 5

Debt-oriented Hybrid Funds

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+. 

point 6

Large-cap Mutual Funds (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.

point 7

Your dream vacation is closer than you think. All it takes is a bit of planning and discipline to assemble funds through your savings and investments. These short-term investment plans will help you get there – but remember to factor in tax implications, your risk appetite and your financial objectives when choosing one of them.
Source Links
1. https://www.sciencedaily.com/releases/2021/01/210104094654.htm

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