A number of times you hear financial advisors, planners and mutual funds selling words like ‘investments’ and ‘savings’ door to door. However, did you know that investment and savings are two different concepts?
Each month, many of you earn an income. This can either be in form of your income from business or your salary. Then, you also come across several expenditures such as telephone bills, clothing, food, rent, internet, electricity etc. Once you are done with making payments for all the expenses from your income, what if left with you is usually called savings. Apparently, the more you save, the better your future is. In addition, you should always intend to curtail your expenditure, but there are several expenditures that just cannot be avoided by you, such as paying off the instalment of loan or the rent. If you intend of creating a wealth, then of course, saving only is not sufficient. You have to step ahead of savings and do something more with them.
That is where the investments step in. The investments are financial tools that assist you increase your money over a course of time. You are required invest in order to fight the inflation every year. By the way, of explanation, the money’s values diminishes. For example, you have a saving of Rs. 10, 000 at present, every month. If you keep this amount of money as it is, it would get you a few things as the years pass. That is because money must be grown and preferably as the same pace as that of the inflation. This is to enable you to afford the same things and lifestyle that you are living at present. Here you will get to know the importance of investment.
A classic example of investments is a mutual fund. On offer are debt funds and equity funds. Nevertheless, do not forget, you will require to ascertain the amount of risk you can afford to take. There are several investments, which grow quickly, and there are the investments, which grow at a slower speed, but yet give you better and higher returns that, the inflation.
Small savings tools such as PPF (Public Provident Fund) and fixed deposits fall in the category of investments.
Not each instrument of investment is appropriate for everyone. If you fall in the highest bracket of tax saving investments, a fixed deposit will not give the returns more than the inflation. Your funds do not grow at a meaningful speed and hence it does not inevitably do what a usual investment ought to be doing to the fund box. However, if you fall in the bracket of lowest income and you are risk reluctant, then a FD (fixed deposit) will work for you.
You can classify the money you keep aside in a savings bank account under savings not investment. The reason is in a saving bank account your funds lie idle. Too little of the investment and too much of the savings does not create a corpus.
In fact, with the instant recovery facility and all the conception of liquid funds, which many of you have kick-started to provide, your savings, also, get multiplied if you make transfers to your excess savings to liquid fund accounts and maintain a bare least balance in your bank account.
However, even liquid fund is only like a parking vehicle; means a savings vehicle. This is not investment. You will require a basket of debt funds and equity funds, depending on the appetite of risk, as investment for the creation of wealth.
|Short-term: ready to go||Long-term: achievement of major goals|
|Ready to have access to cash||Not an easy task to access to cash|
|Minimal risk is involved||Comes with risk always|
|Earns interest||Potential for profits|