Investment and savings both serves the purpose of financial growth. Though they might look alike, they are not. It is better to know the difference between saving and investing. So, you can decide where to put your money.
Keep reading as we are going to take a generalized view of the topic. Hopefully, it will help you to be aware the next time you have to choose between savings or investment.
Table of Contents
What is an Investment?
Investment is the process of investing in different instruments over a period of time to grow your capital. An investment should be goal-based. Goals can be different, and to achieve them, you should look at different investment instruments.
The kind of investment to support your retirement plan will obviously be different than the goal of buying a new car. In the first case, you might look for a pension plan or PPF, whereas mutual funds will be ideal for the second.
Another key fact to note is that you should not mix up investing with trading. When you invest, you are trying to build your assets over a long time. When you trade, you usually buy or sell stocks as per market valuation to make some profit in a short period of time.
What is Savings?
Savings is more of a safety net to park our money. It can also be defined as an instrument to take care of our daily financial activities. Yes, the interest rate associated with a savings account may not be that intriguing. But a savings account helps you easily manage your money.
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The best part is you will not be charged for non-maintenance of any balance in the zero balance account. You also, get a free virtual debit card to carry out all online transactions.
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How is Saving Different From Investing?
Savings is a judicious way of managing your money where the growth is not large enough but the security is guaranteed. On the other hand, investing allows your money to grow at a higher rate than a savings account. But returns are market-dependent and not fixed.
What are the Options?
To find the best option, first be specific about your goals.
- For daily banking activities, shopping, bill payments, all you need is a savings account.
- If you are looking for a long-term goal like a retirement fund, tools such as PPF, pension funds, and life insurance are good options.
- For short-term goals like a vacation or a new car, invest in stocks and SIPs.
Take Away
Take note of your monthly income after deducting taxes and monthly expenses, and then spread out your savings and investments as per your risk appetite and requirements. Never put all of it in the same basket. Continue to learn more about investing and saving based on the market situation, so you can avoid making wrong decisions and losing money.
