How Mutual Funds Can Help Fund Your Dream Vacation

That Goa trip with your friends, that Leh-Ladakh bike trip, the Northern Lights you’ve been longing to see – they’re all within your reach. All you need to do is start your financial planning today so you have money to achieve them. The first step towards your dream vacation could be investing in mutual funds.
Mutual funds are essentially an investment tool that pools money from a large number of investors and invests that corpus into different asset classes, depending on the type of the scheme – global equity shares, Indian equities, blue-chip companies, debt, bonds, gold, commodities etc. The primary benefit of mutual funds is that it gives investors the benefit of fund managers’ expertise, and is thus especially valuable for novice investors.

May 2023
5 mins read

Here’s a guide to using mutual funds to help you plan your dream holiday:

  1. Calculate the trip expenses you would incur today
    First, determine the amount that you would need for your vacation today. Most people tend to only include hotel and travel expenses while calculating their travel budget. This often leads to inadequate estimates, so remember to factor in other expenses too. Start by selecting your destination. Get in touch with a travel agent or check out itineraries on tourism websites to get an idea of travel expenses. Then, allocate a reasonable amount for visa costs, shopping, sightseeing, entertainment etc.

  2. Schedule your vacation
    Select an appropriate time for going on your vacation. Ideally, plan a trip some way in the future, to buy yourself sufficient time to grow your mutual fund investments. The sooner the trip, the higher the initial investment you will have to make.

  3. Estimate your actual trip expenses to get your target maturity value
    Adjust your estimated expenses for inflation to give yourself a target sum. Let’s say you’re planning a Singapore trip two years from now, which today costs Rs. 5 lakh. At 5% inflation, your trip will cost Rs. 5.51 lakh in two years’ time. This is the maturity value of mutual funds you will require. So, if you were to invest a lump sum amount in a mutual fund providing 10.75% annualized returns, you would need to invest at least Rs. 4.5 lakh. If you go through the SIP route, you would have to invest Rs. 20,640 every month.

  4. Pick the right fund for you
    Now you should select appropriate mutual fund scheme based on your target sum and the time available. You could keep your investments in a savings account or fixed deposit scheme, but then you would lose out against inflation. Low-risk mutual funds are a better option.
    If you are going on a trip two years from now, you can invest in debt mutual funds. You can also consider equity mutual funds such as ELSS funds, but these are riskier and more volatile than debt funds, leading to uncertainty in the maturity value. Remember to consider the tax implications of your investment as well.
    If you are planning to travel this year itself, you may go for liquid funds that allow you to withdraw your amount within a short duration. Alternatively, ultra-short duration debt funds can also serve your purpose. Your precise investment will depend on the inflation rate, returns of mutual funds and the intended date of travel.
Start investing today and you’ll be well on the way to your dream vacation. All you have to do is maintain consistency in your investment and keep monitoring your funds to ensure they do not fall short of the maturity amount required. Once that’s done, start packing your bags!

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

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