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, grows for you and earns benefits for you. Below are a few parameters, based on which, Saving and Investments are differentiated:
It is always advised, to fix your goal, before defining the way to reach there. Similarly, when it comes to saving money or investing money, the very first thing you should analyze is your financial goal. Fixing a financial goal will help you choose the way to attain it.
Let me explain to you with an example, consider you are planning a trip to Shimla and the total trip cost is around Rs 50,000. You have 12 months to travel, even if you save every month around Rs 4200, you can easily accumulate Rs 50,000 in a year. On the other hand, if you are planning to buy a car worth Rs 10,00,000, then this is huge money, and you need to do an investment. Investing in mutual funds is always preferable, as they give good returns.
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 long-term capital appreciation. So, if you are planning for financial goals like, for a better-retired life, for your child’s marriage, education, which is due in about 5 or more years ahead from now, investments, from now will help you accumulate enough capital for your financial need, by the time it is required.
When it comes to risk, saving your money 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 estate, the returns are based on market fluctuations. Hence, is considered a bit risky.
Saving in savings accounts gives very less return around 3-4%, whereas fixed deposits give returns with a rate of returns around 7-9%. Whereas investing in Mutual funds, 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, you may get returns, on a rate of interest above 15%.
