Soham Kumar has missed out on his yearly family vacation in the last couple of years due to lack of funds and failing to save for this goal.
Nowadays, many people opt for family holidays at the last moment by availing loans from banks/online lending platforms and pay high interest rates. Some even opt for a holiday from a travel firm and repay via equated monthly installments (EMIs) over 12-18 months.
While there are some who plan in advance, set funds aside and invest separately for a vacation, it may not be adequate considering the time horizon.
Here are some holiday savings avenues that can help you create a corpus for your next vacation: Holiday savings account with a travel firm
Lately, travel firms like Thomas Cook and Cox & Kings have launched schemes to help save for holidays. Amar Pandit, founder, HappynessFactory.in, said, “An investor can choose a holiday destination and save for 12 months in a recurring deposit account of the banking partner. The 13th installment is either paid by the travel firm or is a combination of the interest accrued and a discount by the firm.”
Thomas Cook has partnered with 7 banks. These include: ICICI Bank, IndusInd Bank, Kotak Mahindra Bank, State Bank of India, Bank of Baroda, Andhra Bank and IDFC Bank. Similarly, Cox and Kings have partnered with RBL Bank.
Following are the benefits of a holiday savings account as explained by Abraham Alapatt, president & group head, marketing and innovation, Thomas Cook (India):- Investors can book their package at the prevailing rate when they start their deposit. This enables them to book an inflation proof holiday for next year at today's prices. The spike in annual inflation for a package holiday is between 14 percent and 16 percent.
- Investing in a recurring deposit (RD) will assure interest rates of up to 7.5 percent per annum as compared to 3.5 percent from a savings account.
- Investors can save for a holiday in 12 easy instalments with a trusted bank and earn the 13th instalment from the accrued annual interest on investments, clubbed with a top-up on confirmation of travel.
- Investors can save between 16 percent and 20 percent on their holiday package opted from the options available.
Factors distinguishing a holiday on EMI from a holiday savings account What happens on maturity and cancellation of a holiday due to uncertainty?
After the deposit matures, customers have 3 months during which they can pick their travel dates. Alapatt said, “If for some reason they are unable to travel to the selected destination, Thomas Cook will offer another option in a similar price range.”
In case customers are not able to avail of the holiday package due to unavoidable situations/uncertain death in the family, Alpatt said they can withdraw the money like a normal
RD with interest earned on maturity. "But in that case they will not receive the top-up offered by the travel firm.” Taxes on the RD
The entire interest earned on this RD is taxable as per the investors existing income tax slab.
Alternate investment avenues to achieve the holiday goal
Pandit recommends that one should opt for liquid funds that provide higher returns of 7.5-8 percent per annum post tax instead of these RDs (holiday savings account) that provide annual post-tax returns of just 4-4.5 percent. "These RDs offer low returns compared to liquid and debt funds and thus one will need to save and invest more to achieve their vacation corpus. For vacations planned within 6 months to 3 years, one should invest in short-term debt funds that provide annual post-tax returns of 5-5.5 percent."
Satyen Kothari, chief executive officer and founder, Cube Wealth, said, “If your goals are a long way away, say 3 years and above for an international holiday, one could even opt for (conservative) equity mutual funds that have the potential for higher returns than debt funds (albeit with slightly higher risk as well). These will not only build a good vacation corpus but also decrease the monthly saving you need to make for these vacations. The objective is to make the saved money work hard for you while keeping it safe."
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