How to plan for the perfect vacation

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Have you ever stared at the pictures of friends posing happily in their vacation pictures while you are stuck at your work station? Do you go green with envy even as you compliment your friend on a social media platform and think how lucky he or she is?Don’t worry, you are not alone.

A five-day tour to these Greece, Dubai or London can cost you roughly Rs 1.5 lakh. But, hold on for a bit. Don’t let the mere mention of the amount spook you out. Vacation planning isn’t that difficult, provided you think of investing for the short-term.

Short-term planning to fulfil your vacation dream

The first thing you should do is to choose your desired destination and work out a ballpark estimate,ranging from ticket-booking, accommodation to sightseeing. This will help you arrive at an estimate. The next thing you need to do is to set a short- to medium-term goal and invest a particular sum of money each month through the SIP (systematic investment plan) route in a mutual fund scheme.

Depending on the time horizon, target amount (depending upon the number of family members) and risk appetite, you can choose to invest in an equity fund, debt fund or a balanced fund.

  • Equity fund: These schemes have the potential to provide high returns because they are invested in equity. However, this fund may be perceived to be a tad risky, especially those who are averse to risk. But that is not to say they are high on risk. That’s because mutual funds put your money in a range of company stocks, which means one poor company stock performance can be offset by strong showing of other companies. So, if you want to travel to Greece, you need to put away approximately Rs 5,000 in an equity fund every month to amass Rs 1.5 lakh in a couple of years’ time, assuming the rate of returns over this time frame is 12%.
  • Debt fund: This is an ideal investment option for those who keep their money in savings accounts or fixed deposits. They are safe and provide higher returns than the just-mentioned investment options.
  • Balanced fund: This is a balance of equity fund and debt fund. Those who want the best of both the worlds can opt for this.

Loan vs SIP: Why SIPs are a prudent option

A lot of people opt to take short-term personal loans to go on vacations and front load other expenses on international credit cards. While this can be a viable option, what you are ignoring in the bargain is the interest costs you are shoring up. The effective interest cost of “vacation loans” can work out to be as high as 17-25%. This is because smaller loans are riskier for the lender.

However, if you have a calm head over your shoulders and are ready to wait it out instead of opting for excess debt burden, you are better off investing in a mutual fund through the SIP route to fulfil your dream vacation. Thus, instead of paying interest of 17-25%, you are “earning” money on what can be termed a “good EMI”.

What’s more,you can pat yourself on the back as you will have financed your entire vacation by setting short-term goals and ending up with a little extra cash in hand! You can, therefore, return from your vacation in peace without so much as a line of worry on your forehead about repaying a loan!

To sum up, don’t just stare at your friends’ pictures on social media platforms. Get started on your vacation planning!

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