Invest in your financial health to pursue your passion for travel – Axis Direct
Feb 14, 2020
How to invest in order to travel?
Want to travel overseas in your 30s?Here's how to invest for it
The Indian millennial generation (those born between 1985 and 1996) have a remarkable affinity for overseas travel. They spend more money on travel than any other previous generation. In fact, for many of them travelling regularly is more important than owning a car or a house.
According to a survey conducted by a travel portal in 2017, 62% of Indian millennials go for a vacation at least 2 to 5 times a year.  And it’s not just millennials; people of all ages in the country have a penchant for travel. In fact, 26 million travelers from India went for international trips in 2018 and spend nearly 154 billion Indian rupees.
If you are in your early twenties and want to travel to an exotic foreign destination by the time you reach your 30s, you need to start investing now to build a corpus to support your travel goals. The corpus should be decent enough to beat inflation, take care of you and your family’s needs (assuming you get married by then), and leave enough surplus to enjoy that unforgettable dream vacay of yours.
Perhaps you had dreamt of an awesome holiday to some exotic locations in Europe, Australia, New Zealand, North America, South Africa et al. A fool proof investment plan must have at least an approximate amount of capital, time horizon and investment tools in mind to reach your investment goal.
Here we will help you calculate the amount based on a destination and time horizon, and help you identify the right investment product to reach your travel goals. So, let’s begin!
Not all foreign destinations cost you tons of money. In fact, there are some places in Southeast Asia where you can travel under a budget of Rs. 1 lakh. However, they are budget destinations and they include Cambodia, Sri Lanka, Hong Kong, Indonesia and Philippines.
However, let’s assume that your dream holiday borders around roaming across one of the most popular travel destinations in the world, with your partner, then what will you do or how will you plan ahead? To solve your query, let's take the case of Arvind, a 28 year-old software professional who has 7 years to save and invest so that he can travel to adventurous Australia with his partner Shreya, before he turns 35. A breakdown of the costs will help solve the puzzle in understanding the estimated fund needed for them to plan their future holiday.
Assuming that Arvind and Shreya are travelling from Mumbai to Sydney to start their Australian vacay and they will be stopping in 4 main cities across Australia for two weeks, the following would be an estimated average cost break-up for them, considering the impact of a 6% rate of inflation per annum on the costs after 7 years.
Average costs now
After 7 years*
Return flight – Mumbai to Sydney
Rs. 50,000 x 2 = Rs 1 lakh
Rs 8,500 (per night) x 14 nights
= Rs. 1,19,000
Greyhound Bus Pass - Rs. 15,840 per person x 2
= Rs. 31,680
Rs. 1,440 per meal (for two) x 42 meals
= Rs. 60,480
Tours, tickets and attractions
From the above calculation, we can see that the couple will need almost Rs. 5.8 lakhs for their dream holiday 7 years from now. Now, that we are more or less clear about how much Arvind and Shreya will need to afford their dream holiday, let's look at how they can get there.
The best investment tool
If we consider the time horizon and the amount of return that they need, the best and shortest way of reaching their investment goal is either through equity investment or a mutual fund SIP. Since equity investment carries a higher degree of risk and one needs to devote time and energy to learn the ropes, the best bet is a mutual fund SIP.
So, how much would Arvind and Shreya need to invest per month to reach their goal? Assuming the rate of return of the mutual fund is 12% per annum, they need to maintain an SIP of just Rs. 4,500 per month to build a corpus of Rs. 5.8 lakhs in the next 7 years' timeframe. Therefore, if they stick to their investment goals and regularly contribute to the SIP, despite low returns at times, they sure can realise their dream by just spending Rs. 4,500 per month. That is the magic of compounding at work when you invest in a mutual fund SIP.
Building a dedicated fund for your overseas travel, which most millennials prefer to do nowadays, is a better idea than to pile debt by taking a personal loan or travel loan. Rather than being saddled with debt and worrying about paying high interest rates, a separate fund for your dream holiday will give you the freedom to plan and enjoy a great vacation.