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Vacation Planning
Everyone dreams of going on a grand vacation at some time during their lives. It can be overwhelming, however, when you sit down to actually plan your trip, many considerations go into planning a vacation. Planning your vacation and increase your chances of enjoyable vacation.

However, if investment decisions are seen like travel plans and dealt that way too, the entire process of investing will become less intimidating and more interesting. Let's explore how.

1. What is the purpose of the travel (What is the purpose of Saving and Investment)
Why do you want to travel? Is it to get a break from a mundane routine? Is it to indulge in adventure sports like river rafting or trekking? Is it for a family get-together?

You decide your purpose of travel even before you set out. Why not apply the same logic to our hard earned money?

While investing, figure out why you want to save money. Whom do you want to save it for?
Is the investment planned only to save money for a rainy day?

2. Get a travel budget in place (Get an idea of how much you can afford to save?)
Seychelles or Greece are great holiday destinations, but you will first look at your bank balance before opting for the travel package right?

While investing, you need to figure out how capable you are of saving. Here is how you can figure it out:

A. Get an idea about your monthly income from all your sources and your savings in the bank.

B. Segregate your monthly expenses as
"Can't live without": groceries, bills, loans, school fees, insurance premiums
"Can live without": online deal shopping, upgrading phones, gadgets, cars

C. Set aside at least 6 months (8-12 months if you are conservative) of "Can't live without expenses. Don't ever touch this corpus as this saving will come handy in case of emergencies like hospitalization or loss of job.

D. The balance amount is your savings for the month

3. Prepare the Holiday itinerary or hire a holiday travel company (Prepare a financial plan or hire a planner)

Usually you plan out your holidays. You decide the budgets, ticket bookings and reservations well in advance to get better rates or discounts.

Apply the same logic to investing. Have a financial plan before you run helter skelter to invest in any financial product. A financial plan like a travel itinerary, is an action plan that helps you decide where to invest, to achieve your life's purpose as mentioned above.

- For buying an Audi, put aside savings in a recurring deposit or fixed deposit. When you want to buy it, you can redeem the FD or the recurring deposit to pay the down payment.

- Just like a long or a distant holiday destination, plan in advance, for far-away purposes or financial goals like a corpus for kid's education, marriage or retirement.

Unlike vacation planning, where you know how much the holiday is going to cost (except for our shopping indulgences), in Investing, you don't really know about how much savings you will need to accumulate for a specific purpose. A school admission today costs around Rs 1.5-2 lakh but what will be the cost when you actually want to take admission after 3 years? Using some math skills or online financial calculators can help you identify the amount you will need for such goals.

To have a financial plan in place, you can hire a good financial planner just like you would hire a travel company for holidays that involve getting a visa, multiple sight-seeing tours, etc.

4. Set out on a holiday (Start implementing your financial plan)
Aren't there certain ground rules you always follow while travelling? For example, not keeping all the currency and cards in one place, keeping the tickets, passports and medical kit handy.

Investing has its ground rules too:

1. For short-term goals, invest in avenues with similar maturity. For a goal that's three years away, invest in a three-year maturity deposit.

2. In risky investments such as unit linked insurance plans, shares, equity funds, withdraw 2-3 years before your actual requirement.

- Never dip into your emergency funds
- Loans shouldn't be more than 40-50% of your take-home income.
- Your sum-insured in a life insurance policy must be an amount that is 10-12 times your annual expenses (12 times of "Can't live without Expenses") and covers for your financial goals in the near future.
- Don't use high interest loans such as personal loans to pay other debts such as credit card debt.

5. Review holiday itinerary if needed (Review your financial plan if needed)
A landslide in the hills may force you to change trekking plans or a riot in a country may force you to change your itinerary.

Likewise, an investment may not deliver desired results because its key managers have changed or the rate of return has come down.

Your life's purpose or goals may change in the course of life too. A good planning or a good planner will always help you review the same. The reasons for review could be:

- Scheme/investment not doing well as per expected lines

- Is your investment growing enough to fund your goals: You may not realize this now, but if you had put money in a fixed deposit to fund a child's education, the education fee is more likely to grow at a faster rate than the rate of fixed deposit interest rate. So, for such goals you need to consider investments that cover up for inflation of fees.


Saving for short-term goals requires a different approach than long-term investing. This article includes tips for building savings habits.

Saving for short-term goals can save you money. Planning ahead for large expenditures, such as a vacation or new car, can prevent anxiety and save on finance charges. The first step to meeting your short-term savings goals is to establish a systematic savings routine. A variety of automatic savings plans are available through banks and may be offered by your employer.

The next step is to select an appropriate investment vehicle. Some investments, such as stocks, bonds, and real estate, are probably not suitable for your short-term investment needs because they are either illiquid or too volatile. However, there are a wide variety of short-term investment options available including savings accounts, time deposits (CDs), money market mutual funds, and money market securities1. There are also tax-free money market funds and U.S. Treasury securities, which are exempt from most state and local taxes. Some of these vehicles require a minimum investment and each offers different degrees of liquidity, safety, and return. Keep in mind that short-term return is largely restricted by safety and liquidity. You should, therefore, be realistic about how much you can expect to earn.

Whatever be our goals in life - vacation, higher education, saving for a house loan, children's education, or even retirement - mutual funds can be among a range of investment vehicles to save for it. But remember to choose the right class of funds and save separately for each of your financial goals - depending on the time horizon and your risk appetite. Here is a look at some of the different types of mutual funds and how you can use them for your financial goals.

Equity Funds
Equity funds are high risk funds as their returns are linked to the stock markets. These funds are best suited for investors who seek capital appreciation of the investment over a long-term investment horizon. There are different types of equity funds such as diversified funds, sector specific funds and index-based funds.

Balanced Funds
These funds invest both in shares and debt (fixed income) instruments. They can be considered by medium- to long-term investors willing to take moderate risks.

Debt Funds
These funds invest in debt/fixed income securities like corporate bonds, debentures, government securities, and commercial papers. They can considered by risk-averse investors who seek regular and steady income. They are less risky and volatile as compared to equity funds.

There are different classes of debt funds and investors can chose them depending on their time horizon and investment objective.

Liquid Funds/Money Market Funds: These funds invest in highly liquid money market instruments with the aim to provide easy liquidity. Liquid funds can be used to park cash surpluses for short duration. The duration of investment can be as short as a day.

Ultra short-term Funds: These funds were earlier known as liquid plus funds. Ultra short-term funds predominantly invest in very short-term debt securities, with a small exposure to longer term debt securities. Investors who have surplus cash can consider these funds for a period of one to nine months.

Short-term income funds: These funds invest predominantly in debt securities with a maturity of typically up to three years. These funds tend to have a longer average maturity than liquid and ultra short term funds. Short-term income funds tend to perform well when short term interest rates are high in the financial system. Short-term income funds can be considered by investors who have a low risk appetite and an investment horizon of 9 to 12 months.

Income funds: These funds invest in a basket of debt instruments of various maturities. Income funds are susceptible to changes in interest rates. So these funds can be considered by debt fund investors who have a long-term investment horizon.

Gilt funds: These funds invest in government securities of different maturities issued by central and state governments. The returns from these funds fluctuate due to change in interest rates. So these funds have a higher interest rate risk as compared to other debt funds.

example:A few months ago, Dr Pravin Kumar, a medical practitioner, sold most of his equity mutual fund holdings to take a long-pending family vacation.

Why did he sell his equity holdings that he had been diligently accumulating through systematic investment plans of mutual funds for the one and a half years? He was not enthused by the returns from his equity holdings. And he had not saved for his vacation separately though he was planning for it for some time. Yes, the equity markets have not performed strongly over the last two years. But the bigger question is did he chose the right investment vehicle to save for his vacation?

Many of us commit the same mistake as Dr Pravin: we don't align our financial goals to the right kind of investment vehicles, even though our hard-earned money is at stake. And in the process, we lose out due to unsystematic planning. Dr Pravin is now ruing his decision to sell his equity mutual funds. The equity markets have sharply rallied in the past two months.

Through a bit of investment planning, Dr Pravin could have put aside the funds for his vacation in debt funds and separately build his equity corpus, however small be his monthly contribution in equity funds. Besides earning some decent returns on his money set aside for the vacation, Dr Pravin could have put his equity holdings to work for more time to realize its long-term potential.

While everyone is interested in making investments with huge returns and saving on big cash, many do not have a clue as to how they must use this money. Looking forward to shortcuts, tips and easy ways of minting money have become commonplace and as there are varied options for this, the process of taking saving and investment-related decisions has complicated. From fixed deposits to post office schemes, insurance plans, mutual funds, gold to even investing in real-estate, these choices that further come with multiple options and schemes have aroused confusion and complexity in people's minds.

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