Vacations and Mutual Fund SIPs

Ice creams, lime juice, afternoon siestas, munching on refreshing slices of watermelon and fragrant mangoes— all conjure up the hot summer months and the beginning of the vacations, when the only thought that can cross the mind is an escape into the mountains. However, have you planned for it? And this is the question that generally strikes us before any vacation we may want to take.

Why should you plan a holiday corpus?

With travel costs on the rise and the pressure of other priorities like saving up for an emergency fund, a retirement corpus or a children’s education fund, you might be standing at the critical juncture where you either have to deny the pleasures of a vacation to yourself and your family, or you may need to dip into the funds allocated for your other priorities mentioned earlier. Proper planning and allocation of an exclusive corpus for your travel can help you avoid this Catch 22 position.

How to create a vacation corpus?

With a little foresight and a small investment each month into a mutual fund scheme of your choice, you will be able to create a corpus that can help you avoid some stressful moments when travel plans loom up. Mutual fund is a suitable investment option as it may give you better returns than traditional savings. A Systematic Investment Plan or SIP is an easy and pocket friendly way to save and invest small amounts in a disciplined way. With these regular investments, you can benefit from rupee cost averaging and hope to build an appropriate corpus. You can start with a small amount and increase the amount of contribution to the scheme as and when you have extra money at your disposal.

The type or category of mutual fund schemes that you may invest in for creating a vacation corpus depends primarily on the time horizon of your investments. The following are options to help you plan your investment for a vacation corpus:

1. Investment horizon of 12 to 18 months: For planning a vacation within a 12 to 18 months window, mutual funds schemes like money market fund, low duration fund or short duration fund may be good investment options. These funds are less volatile than longer duration funds and can be suitable for the shorter duration. Choose funds with a high credit quality to reduce the risk.


2. Investment horizon of 24 to 36 months: If you are planning for a vacation after about 2 to 3 years, then you may opt for corporate bond funds, Banking and PSU debt funds and dynamic bond funds depending on your risk appetite and investment horizon. If you are willing to take slightly higher risks, you can also choose conservative hybrid funds for a minimum 3-year investment horizon and get the benefit of equity exposure.


3. Long term vacation kitty: As your income increases you can also create a long-term kitty for vacations through SIP in diversified equity funds. Equity as an asset class has the potential to give inflation beating, tax efficient returns in the long term. A vacation kitty, which keeps growing over time, gives the flexibility to plan a vacation whenever you want. In fact, a sufficiently large vacation kitty / corpus can fund your travel even in your retirement years too.

Suggested reading: how to use different ways of investing systematically in mutual funds

Prioritizing your life stage goals versus travel goals?

While you and your family deserve a great vacation, it should not come at the cost of life stage goals e.g. children’s higher education, children’s marriage, retirement etc. This does not mean you deny yourself and your family the pleasures of a vacation. By planning ahead and investing you don't have to dip into your children's higher education kitty or your retirement nest egg to pay for your travel.

You may also like to read how to achieve financial freedom through planning

Conclusion

So, get down to the drawing board and start planning for a memorable vacation that will not only take the stress out of your mundane work schedule but also not burn a hole in your corpus kept aside for other long term financial goals. Contact your mutual fund distributor or financial advisor to find out the most suitable schemes to plan for your needs and ensure that the smiles on your social media pictures are genuine ones.

Disclaimers

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