If you have landed on this article, it is safe to assume that you are planning a dream vacation. Is it a nice, clean beach or somewhere colder? Is it the rainforests of Brazil or the deserts of Africa? While we may not be travel experts, we sure can help you get there. How? TradeSmart has over two decades of experience when it comes to matching investors with investments. However, we understand that one solution doesn’t fit all. Moreover, everybody’s travel is different, but travel can be an expensive affair. You will need all the help you can get to make sure you live out your vacation goals but also don’t break your bank. You have landed on the right page if you are looking for the best investment options for a vacation.
Best investment options
Depending on where you want to go and how lavish the journey would be, you first need to ascertain a budget. Since you are here, we assume that you have a number to begin with. Now, how do we reach that number? If you are going to make that move within 1-3 years, you are looking for short term investment plans with high returns. You can explore the following short-term investment options:
- Fixed Deposits: Bank FDs are usually secured and have a fixed interest rate, which can be as high as 7.5%, however, they are rigid when it comes to withdrawals.
- Share market: In the last year alone, the share market has registered a growth of over 500% for some shares. However, to enter the ever-fluctuating secondary market, one has to be well-prepared for losses. You should know about the company just as much as you know about its shares.
- Trading: One of the best investment options in India is to get into derivatives trading. Not only does it act as a wealth generation tool, but it also hedges you against international volatility. However, for this too, you would need a sound knowledge of the asset class, the macroeconomic setup, how trading works, and more mumbo-jumbo!
While the share market and derivatives have no lock-in period and can both offer great returns, they also offer great risks for those who are unsuspecting. FDs, on the other hand, are rigid and low on returns. How do you save for a vacation then! Simple, you can invest in mutual funds. Mutual funds are investment tools that invest a corpus of money into the equities and debt markets. The mutual funds that invest in debt instruments become debt mutual funds. On the other hand, equity mutual funds invest in equities. Usually, equity mutual funds have a 3-5 years lock-in period, but that is not the case with debt mutual funds. Their lock-in is max for a year. Moreover, the returns are 50% higher than FDs, and the risk is far lesser than the share market.
Some of the top investment options
Depending upon when you plan on taking your vacation, you can choose from: Liquid funds for vacation plans within one year: If you’re planning to take the trip within a few months but not as late as the next year, then consider investing in liquid funds. Liquid funds allow you instant withdrawals too. The most you may have to wait for is a 90-day lock-in period. Though being a debt mutual fund, their returns would not be as high as equities, but they are relatively risk-free. Before investing in liquid funds, check the credit rating of the mutual fund. Choose the ones with a high rating to be sure.
Ultra-low duration debt funds for vacations 1 to 3 years away:
The risk factor is higher with these mutual funds, but, even then, it is a good short-term investment option and has a great risk shield when compared to equities and derivatives.
Types of investments and their risk profiles
When it comes to investments, there is no perfect answer. You have to analyze your own risk profile to make the decision. If you are an aggressive investor who is comfortable with losses, you can go for equity funds. However, if your appetite for risk is conservative, it is best to stick with more safeguarded investments. Short-term investment plans that come in the shape of debt mutual funds may only be able to offer 10-20% returns over a period of 1-3 years.
Is it a good idea to invest in mutual funds to save for vacations?
Yes. With debt mutual funds, you get no lock-in periods and higher returns than FDs.
Can I invest in the stock market, mainly trading for gains?
Yes, there is plenty of money to be made in the stock market, but bad investments can lead to losses.
How should I calculate what amount I would need?
Take into consideration lodging and transportation costs, in addition to food and activities. You can also add emergency funds to the mix to fool-proof your travel.
When should you exit a liquid fund?
It’s usually easier to withdraw from a liquid fund than it is to withdraw from equity mutual funds. While most have a lock-in period of 90 days, in some cases, there may even be no lock-in at all. So, you are free to exit anytime you want after the liquid fund has matured or whenever you want.