Articles 390 views August 7, 2021

The financial security of individuals rests on how they channelize savings and investments over time. But some don’t even know the difference between savings and investments. For them, it is important to know that first before they can plan their finances. In case you are one of those wanting to know the difference between savings and investments, this post is for you! We will first define savings and investments before differentiating the two. This approach will help you grasp these two concepts of finance better and plan effectively to achieve your financial goals. Let’s begin!  

What Do You Mean by Savings?

Savings means the money you keep in your bank account. So in case you face any financial emergency, you can take that out from your account and deal with the same. Savings when accumulated over the years can turn into a significant sum and let you face an emergency or do a purchase with ease.

What Do You Mean by Investments?

Investments are about creating wealth for the future by putting money in a wide array of financial instruments. So, those eyeing ambitious goals like money for weddings, education and retirement should go predominantly for investments.

It’s Time to Know the Differences

As of now, one could understand that saving is about keeping the money safely in a bank account. Whereas investments are about creating a corpus for the future. Now how you plan your finances will depend on the differences between savings and investments. So, here are the factors based on which you can differentiate the two. 

Financial Goals

Knowing how much to save and invest will depend firmly on what you want to achieve. For short-term needs, you could keep money in a bank account. So if you want to buy an iPhone costing around INR 60,000 a year later, you could earmark INR 5,000 from your income and keep it in your savings account to do so. But if you are planning something like buying a home, you cannot rely on your bank account only. You will need to invest heavily for a long period. 

Risk Appetite 

Keeping money in a bank account is safe as you can withdraw that anytime. You can do so even in investments, but they come with varying degrees of risks. So, if you have invested around INR 60,000 over a year, it is not guaranteed that you could withdraw the same amount. The investment value can drop below the actual amount invested due to fluctuations in the underlying securities. In case the market sentiment remains weak for long, it could weigh on your investments too. At the same time, risks are greater in equity instruments compared to their debt counterparts. 

Equity instruments include the stocks of different companies that one buys to become their shareholder. Whereas debt instruments include bonds, debentures and money-market securities issued by the company to raise debt from the public. In return, investors earn interest on such investments. 

Expected Returns

Savings accounts earn you interest at around 3-6% per annum. In comparison, equity investments could offer you double-digit returns. Although such returns are not guaranteed, these investments usually do well over the long term. Debt investments, on the other hand, can generate lower returns than their equity counterparts but more than savings accounts. 

But Can You Get a Life Cover with Your Investments?

Yes, you can! There are some life insurance-cum investment plans that put your money for life insurance and investment purposes. These plans include Unit-linked Insurance Plans (ULIPs), endowment plans, money back plans, annuity plans, etc. Such plans provide a handsome payout to your nominees in case of your death during the policy term  while investing in financial instruments to earn something for you.

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