5 best short term investment options to fund your next dream vacation
A great vacation completely relies on the amount of funds that you have managed to spend without severely influencing your overall budget. In order to carefully plan your dream vacation, one of the finest ways to adopt is to dedicate a fund for this purpose. This can be conveniently accomplished by various short term investment options. An individual can park his/her fund in some short-term based investment options, in order that it can be liquidated anytime one wishes while obtaining a return reward as well. Whenever you think to invest money for a vacation, begin early to prepare a large amount and concentrate on low risk, guaranteed return on investment as well as high liquidity instruments. Now let’s have a look at the five best short-term based investment options to appropriately fund your dream vacation:
- Bank fixed deposits:
A bank fixed deposit (FD) is usually considered as a secure option to invest your funds. You can safely invest for a period as small as 7 days to as large as 10 years, with interest rates changing accordingly. Moreover, you can opt to have interest credited each month to your bank account or you can opt for interest reinvestment in order to attain cumulative return. Presently, banks are providing interest rates in the range starting from 4 percent to 8 percent based on the tenure one choose.
It is vital to note that you can liquidate an FD anytime; however, also take a note that premature withdrawals lead to the decrement of interest income for the invested tenure by one percent. Moreover, interest gained on FDs is taxable according to your applicable tax slab.
- Corporate fixed deposits
Corporate FDs are identical to bank FDs; however, they carry greater risk, so the interest rate provided is usually 1-2 percent higher as compared to bank FDs. However, it is known that the liquidity aspect might not be as appealing as that of the bank FDs. It is one of the finest short term investment options due to the fact that it offers higher interest rates. In this, there is a minimum tenure of 1 year.
While planning for your dream vacation, you can invest in corporate FDs to branch out your investments and maximize the returns. The best part of this option is that the interest earned by this type of investment is incorporated into an individual’s income.
- Recurring deposits:
It is possible that you may not have a large amount to invest in your dream vacation. In such cases, you can gradually start accumulating money by making the investment through recurring deposits. Under this investment option, a fixed amount is subtracted from your bank account at some regular intervals. You can make an investment in recurring deposit for a tenure varying from 6 months to 10 years. It should be noted that one gains identical interest benefits like that on an FD for the particular tenure. It is one of the affordable short term investment options as you can invest in recurring deposit and fund a considerable amount for your vacation without being prone to high risk.
Companies permit early withdrawals at its discretion and might levy a penalty according to the pertinent rate. Similar to an FD, if you withdraw an RD prior to the conclusion of the tenure, it is known that banks may levy a penalty according to the prescribed rate.
- Liquid mutual funds:
Liquid mutual funds are essentially debt-oriented schemes. When you are deciding to fund you next vacation, you can park your additional funds in a liquid mutual fund and can earn low-risk returns in the interval of short to medium term. The appealing aspect is that you can withdraw the funds whenever you require without worrying about exit load. Furthermore, this investment option also provides a simple entry and exit route. You can use a liquid fund investment option to allocate business funds or short-term amounts to earn exciting returns.
It is important to note that return from liquid funds is not fixed. Based on the existing market condition, you can gain a return of approximately 6-7.5 percent per year. Furthermore, liquid funds are liable to capital gains, which is actually taxable. You are taxed depending on the period you one stays invested in a particular fund. Short-term capital gains (STCG) are charged if you leave in a period of less than 3 years, while investments continued for more than 3 years draws long-term capital gains (LTCG).
- Share Market:
If you can wait for certain period of time for returns to reap then share market is one of the recommended short term investment options. Let’s take an example, a blue-chip company such as Infosys has offered 28% returns over the course of last three years.
The investment option comes with a risk that bad performance noticed in some of the shares in past may be replicated. Moreover, there is a risk of loss of capital as well. On the reverse side, you can end up funding your Dubai trip by just making an investment. Also, the shares which are held for period higher than a year are regarded as long-term capital assets, so you need not pay any tax upon sale. But, you will need to pay short-term capital gains tax at the rate of 15% when you sell the shares in the span of one year of procurement of the shares.
After getting the idea of different investment options for the short-term interval, ask yourself, when should you begin saving? Based on your investment budget, duration of vacation and your convenience with the available investment options, you can plan your next dream vacation.
