​

On Rajiv's insistence, Prabha had borrowed Rs 4 lakhs from the bank at 13.99% rate of interest for a loan repayment tenure of two years for their dream vacation. After their trip, she had to pay Rs 19, 203 as EMI. For two years this EMI amount was regularly deducted from her account, via ECS. At the end of the term, she paid Rs 4,60,878 (principal = Rs 4 lakhs + interest = Rs 60, 878).

During the two-year tenure, each month's EMI burned a hole in her bank account, which led to arguments between Prabha and Rajiv about money. With Rajiv paying the EMI for a home loan, they faced a financial crunch. Ultimately, Prabha and Rajiv came to regret their decision of going on a vacation by taking a holiday loan.

Being thrifty and smart financial planning are extremely crucial steps if you do not want to become a pauper after your vacation. So instead of looking at availing of a loan, why not invest a substantial amount and generate returns that will fund your dream vacation.

When you plan weeks or months ahead, you get huge cost benefits-cheap flights, discounted hotel stays, early-bird offers, and whatnot. Apart from this, planning your itinerary will ensure that you make the best use of your time. At the end of it, you will be satisfied that your money was well spent.

Foreign tours cost more and can drain on your savings if it isn't planned properly. Cost of trips to Europe and the United States start at around Rs 6 lakh for a family of four. Touring within the country is not cheap either and proper planning is required. To ensure your vacation goes smoothly and without regrets, you need to:

• Estimate the budget you need and what you can afford

• Finalise your travel plan

• Calculate the number of months/years (time horizon) for the vacation

• Inflate the budget using the appropriate multiplier (costs associated with trips go up every year)

• Calculate the amount that you can spare every month towards investments

• Choose suitable investment avenues to earn desired returns

• Ensure you encash your investments on time

However, merely planning your trip and booking tickets or hotel stay in advance may not be enough if the aim is to make your trip economical as well. For that purpose, you need to save and invest every month to be able to finance your vacation. This will lessen the burden of paying for a vacation at the last minute.

Returns earned on your investment will help fund out of pocket expenses and will not deter you from accomplishing your other financial goals. If you consider a systematic investment plan (SIP), it will help you in achieving your goal and save diligently for your next dream holiday.

SIP is a mode of investing in mutual funds regularly so you can accumulate wealth for the long-term. This inculcates a disciplined way making investments in mutual funds.

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This method of investing is like investing in a recurring deposit (RD) with a bank, where you deposit a fixed sum of money regularly (into your RD account) and reap the benefits from the market investments.

A SIP includes a series of consecutive payments of pre-determined amounts made after a defined period. It can be weekly, monthly, quarterly, or even yearly. This is a hassle-free way to invest in mutual funds and inculcate a regular savings habit.

[Read:  Are SIPs Better Than Lumpsum Investments? Know Here...]

With the SIP mode of investment, your money is deployed in a mutual fund scheme (equity schemes and/ or debt schemes). But remember, your investments are subject to market risk.

If Prabha had considered doing a SIP instalment of loan equivalent EMI amount of Rs 19,203 for three years in a diversified equity fund, she would have received approximately Rs 8,35,477 (assumed rate of return at 12%). As SIP helps in rupee-cost averaging and the power of compounding works out better. Besides the amount which she received, was far more as compared to her cost of the trip amount of 4 lakhs, so the remaining amount she could have re-invested.

If she had started a SIP instalment of Rs 9,286 for three years in a diversified equity fund, she could had managed to save upto Rs 4 lakhs and not burn a hole in her pocket, as seen in the table.

Table 1: Different SIP instalments into an Equity fund.

	Amount (Rs)
EMI equivalent SIP amount invested for 3 years	19,203
SIP instalment to achieve a corpus of Rs 4 lakhs for 3 years	9,286
Difference in the SIP instalments	9,917

(Illustrative purpose only. Assumed rate is at 12% per annum)

Alternatively, if Prabha would have considered doing a SIP in a debt mutual fund for two years, each month she would have had to invest Rs 19,203 and therefore, she would have received Rs 5,01,315 (assumed rate of return at 8%), that would have allowed Rajiv and her to enjoy a lavish trip sans a loan.

Similarly, if she had started a SIP instalment of Rs 15,424 for two years in a diversified debt fund, she could had managed to accumulate upto Rs 4 lakhs and save Rs 3,628.

Table 2: Different SIP instalments into a Debt fund

	Amount (Rs)
EMI equivalent SIP amount invested for 2 years	19,203
SIP instalment to achieve a corpus of Rs 4 lakhs for 2 years	15,575
Difference in the SIP instalments	3,628

(Illustrative purpose only. Assumed rate is at 7% per annum)

​By planning prudently, you would not only finance your outings, but would utilise financial resources optimally which may eventually help in your long-term goal of wealth creation.

Investing in Mutual Funds through SIPs can help one accomplish financial milestones in the right way. It is a wonderful option that besides growing wealth for you helps in developing patience, focus, and discipline, i.e. good habits.

So, decide wisely;

How do you want to pay your instalments?

EMI way (Financial burden) or SIP way (Financial Freedom)?

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