Both these words are two wheels of the same cycle
With so many scams and frauds, it is time to reform the co-operative banks in the country
People of today are more careful when it comes to managing money as they know they are not live in a world where they can take each day as it comes. It is true that nobody can predict the future and financial emergency may come at any time in your life. So, it is important to save money for a financially secure future and get a safety net when there will be an emergency. All of you may hear the words, saving and investing and most of the time uses the words interchangeably. Even though the aim of both these terms is generating returns, both of them have a different meaning. Let us take a look at the difference between savings and investments in this article.
Savings and investments
People often use words, savings, and investments, interchangeably, but the meaning of both words is not the same. Both these words are two wheels of the same cycle. The aim of savings and investments is generating wealth. Creating a budget is the first step in saving your money. If you have a good understanding of your expenses, you can save money accordingly. Saving is putting a small portion of your money aside regularly in safe and liquid assets, usually for a short time with relatively less risk.
However, investing is a process of using your money to generate returns over time. You must start your investment early so that you can plan for the future wisely. Besides, you can enjoy a sense of investment with that. Investing early also gives you a positive impact on both your personal and professional life.
You can be secure financially by saving your money. It also provides a safety net if an emergency arises. Anybody needs money set aside to pay for their necessities and avoid going into debt on emergencies. If you do not save or invest money, you open up yourself to many risks. One of the advantages of savings is that there is no risk involved in it. But if you prefer saving money instead of investing, the rising costs can devalue your savings.
Risks involved in Savings
Before saving money in a bank or other financial institutions, you must properly understand the risks involved with it. A bank faces many risks if not manage them carefully. Sometimes banks lend large money to customers and they may not repay it due to some or other reasons like a failure of the business. Under the current form of FRDI Bill, your deposit up to Rs.1 lakh is insured and this amount will be paid to you in case of a collapse of your bank. RBI and other concerned authorities leave depositors to their fate in most bank fraud cases. Many urban co-operative banks face fraud issues due to poor governance. In fact, there is no effective mechanism in India to run UCBs. With so many scams and frauds, it is time to reform the co-operative banks in the country. So, whether you choose a bank or non-banking institution, your savings are not fully safe.
Investment helps you to create wealth, but it requires discipline and a lot of patience. If you start investing early, you can enjoy the compound effect that appreciates your capital for long tenure exponentially. The most important feature of investing is that it offers so many avenues to invest your money like mutual funds, bank deposits, equity shares, insurance, real estate, etc. Investing money involves high risks compared to saving money. Before investing your money, you must have an understanding of the risk that you are willing to take with the invested capital. Higher the risk factors, you can enjoy better returns in the case of investments.
Investments are a better option to generate wealth
Fixed deposits are a good way to start your investment portfolio and save your money for a fixed term. The interest offered for FD can be varied from bank to bank for the same tenure. Usually, banks offer an interest rate between 3.5% and 7% for savings. Savings are suitable for emergencies and not effective for beating inflation. So, your savings do not grow. But investment helps to create wealth and beat inflation. Time is an important factor when it comes to amassing wealth. It also depends on which financial instrument that you choose to invest your money.
Beat inflation by investing money properly
Many people think investing money in different instruments like mutual funds involves high risks. With the current financial situations, banks and NBFCs can be gone for liquidation and make your savings at risk. Compared to savings, you will have a better return if you start investing early. And it also helps you to beat inflation. By saving money as a bank deposit at 7% per annum and the inflation is at 5%, then your actual return is only 2%. Inflation does not affect you for a year or two. However, the value of Rs.10000 that you saved now will be only around Rs. 2500 after 20 years. At the same time, if you invest money in instruments like mutual funds, it can give an average return of 13-15%.
Both savings and investments aim to make you financially independent. Your savings make you successful financially. But you can amass wealth through the process of investing. You need to do both the process with a wealth-building plan and within your budget. Try to start your investment process as early as possible so that it gives you a chance to grow and reinvest the money that you get to generate more returns.
Compared to savings, investments give you more opportunities to amass wealth, but it is on the high-risk side. Relatively low risk involved in saving your money, but you need to take high risks in case of investments to generate wealth. Talk to a good financial advisor to create a great portfolio for the proper investment of your money. He helps you to find the right investments based on your financial objectives and risk appetite.
That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.