saving and investment

SAVING AND INVESTMENT – KNOW THE DIFFERENCES IN BRIEF

SAVING AND INVESTMENT- Know the basic differences in brief.

What is Saving?

Savings is the extra part of consumer’s disposable income which is not used for current consumption. It is kept aside for future use. It is kept to meet the emergency requirements or unexpected situations arises. It makes a person financially strong and mentally secure. There are several ways through which a person can save money i.e accumulating it in the form of cash holdings, or depositing it into the savings account, Fixed Deposit, Recurring Deposit or in any other investment fund.

The first step of wealth formation is savings, which is decided by a person’s level of income. The higher the income of a person, the higher is his capacity to save, because higher income increases the propensity to save more and decreases the propensity to consume. The boosting force depends on some factors like his concern or financial background etc.

What is Investment?

The process of investing is to save money to achieve a particular goal.  When you purchase an asset with the hope that it will grow and give good returns in the coming years than it is called investment. The present requirement should be foregone to obtain future higher returns. Investing for medium or long term targets like Marriage, Higher Education, Vehicle purchase, House Building, Retirement Planning etc.

The purpose of the investment is the creation of wealth. It can be in the form of capital appreciation, interest earnings, dividend income, rental income or long term passive income. Investment can be made in different ways like Equity Stocks, Bonds, Mutual funds, Commodities, Currency, IPO, Gold, Pension Fund or Annuity or any other securities or assets.

As investment has a risk factor of losing money, but it is also true that you can accumulate more money with proper investment planning.

The major differences between savings and investment are explained:-

  • Savings means to set aside a part of your income for emergency or sudden requirement. Investment is defined as the act of putting funds for wealth creation.
  • People save money, to fulfil their unexpected expenses or urgent money requirements. Conversely, investments are made to generate returns over the period that can help in capital appreciation.
  • Saving is much secure, but with investment, there is always a risk factor.
  • Investment provides higher returns than savings. Saving is a traditional instrument, the nominal rate of interest is expected. However,  you can earn more money than the invested principal amount, if invested wisely.
  • You can access your savings anytime because they are highly liquid. But in the case of investment, you cannot have easy access to money because the process of liquidating the investments takes some time.
  • Saving cannot beat inflation but the investment can.

Must Read:- SAVINGS AND INVESTMENT- WHICH ONE IS BEST?

The Difference between Savings and Investment in tabulated form.

  Saving Investing
Purpose Emergency fund Corpus/Wealth creation
Duration Less/Short term goal Long term goal
Liquidity High Liquidity Low/Moderate Liquidity
Risk Low Risk Moderate/High Risk
Types Liquid Cash.

Saving Account.

FD.

RD.

Mutual Fund.

Equity Share.

Gold ETF.

Commodity.

Annuity.

IPO.

Best way to save money – the conclusion.

  1. Savings alone cannot increase your wealth, because it can only accumulate funds but can not beat inflation.
  2. If you want to create healthy assets over the long term you have to diversify your heard earning money into saving and investment wisely.
  3. Before planning you study the various investing instruments. Write all your goals in paper and set time for each goal.
  4. Do not put all your money into saving or in investment alone.
  5. Risk and returns are always associated with each other. You have to take a risk to get Your portfolio must be well balanced.

SAVING AND INVESTMENT- HAPPY READING.

About the Author

Leave a Reply