Hello Readers!
How are you all?
Are you Saving your money or Investing your money? Well before deciding the right place for your money, you must be aware of the interesting facts related to Saving money and Investing money. You should know the differences between both, advantages and disadvantages of both, after all, it’s a matter of your money!
Today, through this blog, we are going to explain to you about saving and investing, and the major differences between them. Reading this blog will help you understand which option would be best for attaining your financial goals.
SAVING vs INVESTMENT
What is Saving?
Saving is simply defined as the part of your income that you haven’t spent but kept aside for future use. People do savings of money for small scale financial emergencies, or for small goals or agendas, that do not require a big sum of money, like purchasing mobile phones, planning a trip to the domestic place, and many more. Savings can be done through various ways like collecting money in the form of cash holdings, or depositing it into the savings account, pension account or more.
What is Investment?
Investing is simply defined as, keeping your money at a place with the expectation of benefit on investments, in the future. When people invest, they allocate their money in an asset, with the objective that it would generate capital appreciation, over a fixed period. Investments are featured to generate good returns, they are basically done, to meet big financial goals like buying a house, planning a foreign trip, planning for a child’s higher education, planning for expenses after retirement, planning for a child’s wedding and many more. There are various ways through which people invest their money like, investing in mutual funds, stock, bonds, real estate, golds and many more.
Differences between Saving and Investment
Well, in short, if I say, savings can be considered a box where, people store their money, but not let them grow, whereas, investment is a kind of job, where your money works for you, grow for you and earns benefit for you. Here I am listing some of the major parameters, based on which, Saving and Investments are differentiated:
1. Differences based or Priorities or Choices: It is always advised, to fix your goal, before defining the way to reach there. Similarly, when it comes to save money or invest money, the very first thing you should analyze is your financial goal. Fixing a financial goal will help you chose the way to attain it, like for example, consider you are planning for a trip to Shimla, and you calculated the total cost around Rs 50,000, and you have 12 months to your trip, if you save monthly around Rs 4200, you can easily accumulate Rs 50,000 after one year, for your trip, only you will have to discipline and control your monthly expenses a little bit. If you are planning to buy a car worth Rs 10,00,000, then my dear this is a big sum of money, and you need to do an investment. Better, invest in mutual funds, as they give good returns, with a good rate of return up to 12%.
2. Differences based on Period: Savings are generally done to meet financial needs in a short duration likely from 1-3 years, whereas, Investments are done to meet bigger financial goals, that require a long-term capital appreciation. So, if you are planning for financial goals like, for a better retired life, for your child’s marriage, or child’s education, which is due in about 5 or more years ahead from now, investing in mutual funds, from now will help you accumulate enough capital for your financial need, by the time its is required.
3. Differences based on Risk: When the conversation shifts to risk, saving in a savings account or fixed deposits or through another way, are considered the safest investments, as they ensure a fixed amount, over a fixed period of time. On the other hand, whether it is investing in mutual funds or stock markets, or real estates, their returns are partly based on market fluctuations, and hence, is considered a bit risky, but investments, through these ways are preferred more, as they yield good returns on one's investments, and builds a strong base for wealth creation.
4. Differences based on Returns: Saving in saving accounts, gives very low returns, with a rate of return around 3-4%, whereas fixed deposits, gives returns with a rate of returns around 7-9%. When it comes to investment in Mutual funds, it gives a good return on one’s investment, with a rate of returns around 10-15%. Sometimes when the market performs, above the sky limit, mutual funds may give returns, on a rate of interest up to 15% or more.
5. Differences based on Access to Money: Well, this is one of the parameter, why saving was preferred more over investments before, people thought saving is better, as they can get access to your money at any time, they require, but let me tell you, many of the mutual funds, except close-ended mutual funds, are highly liquid in nature, that is you can easily redeem your mutual fund unit, at the time you require it.
The amazing features of Mutual Fund Investments:
There are many points about mutual funds investments, due to which it is suggested more by the professionals to individuals for their financial planning for future goals, moreover Savings, some I am illustrating here:
- Mutual funds have a variety of different types of funds, specially featured to meet every type of financial needs of investors, like if people want to invest for short period and can adhere a low risk, they can invest in DEBT FUNDS, people who want to invest for long-term can invest in EQUITY FUNDS. Also, if people want to save tax on their returns, they can invest in ELSS funds.
- Mutual funds are riskier than saving instruments like FD’s, savings account and more, but it yields good returns than these saving instruments. If people are allergic to high risk, they can invest in Debt securities, as they are considered less risky mutual funds.
- Mutual funds allow you to diversify your portfolio, by allocating your funds in more than one scheme, this helps reduce the risk and enhance the return. This option is not available in Saving instruments.
- SIP (Systematic Investment Plan) in mutual funds, has enhanced its concept and made it easier and more convenient to invest in mutual funds.
As you know the differences between Saving and Investment, also you got to know the differences between them, and why investment, especially mutual fund investment is preferred moreover Saving, so what are you waiting for, plan your investments today and make yourself financially relaxed towards your future goals.
Most importantly, always consult a financial planner or advisor, before starting your investments. They will help you select the best mutual fund, for your investments as per your requirement.
You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk, kindly read all the scheme related documents carefully. Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee of future returns).