FDs, liquid funds for smart travel

NEW DELHI: In the first week of December 2017, when one Bitcoin touched nearly $19,000 in value, Prateek Kumar, a young IT employee who had saved Rs 1 lakh for a Euro trip, invested his entire saving in the cryptocurrency, expecting it to double his money in no time. Sadly, his investment turned out to be a dud as Bitcoin value had come down by more than 50 per cent since then. At last, he withdrew his investment at a depreciating value of Rs 40,000 and postponed his tour.

When it comes to saving money for leisure travel, it is advisable to create a safe travel fund.  While many travellers we spoke to said they leave the money in their savings bank account, many said they go for fixed deposits or liquid funds. “I keep 10-15 per cent of my monthly salary aside and after six months, I put away that money in a fixed deposit to build up a travel fund. This prevents me from spending the money on other needs,” said Nisha from Mumbai, a passionate traveller who has visited 12 countries. According to her, getting air tickets and hotel booking done well in advance is the key to save money on a foreign tour.

FDs, due to its nature, are the safest options to replace the money accumulating in bank accounts. The main advantage of putting the money in the FDs is that it keeps the money aside for a specific purpose, gives a higher interest rate of 6.25 per cent (plus taxes) and yet, is accessible at short notice.  
People who think FDs are too old-fashioned, opt for liquid funds to park their saved money. A type of mutual fund, liquid funds primarily invests in short-term debt instruments like treasury bills, certificate of deposits and commercial paper with maturity up to 91 days. It provides moderate returns, safety and liquidity — things essential for travellers. According to Value Research, the average returns of all liquid funds in India in the last one year is 6.5 per cent. In good years, liquid funds have given eight to nine per cent return.

But what if one had to spend the travel fund to meet some emergency and still wants to take the holiday? Such people can always opt for a travel loan, which is a kind of personal loan given for travel. Experts say this option should be the last one as the interest rate is on a higher side, ranging between 12-20 per cent depending on the bank, and collateral is sought if the loan amount exceeds Rs 2 lakh.

Despite the shortcomings, travels loans have become very popular among travel enthusiasts. Similarly, like travel loans, credit cards can be used to finance a tour because of the interest-free 55-day credit period. However, it attracts foreign transaction fee of up to 3.5 per cent of the transaction value, making it a hard choice among subscribers.