Make A Choice Between Saving And Investing

Saving and investing are used interchangeably, but in reality, the two have distinctive roles to play when it comes to financial planning. Though both of these functions contribute to the future corpus, realizing the difference between the two is crucial to reap the benefits of a well-planned financial strategy.

Most of the times, people try to focus more on savings and fail to channel it into appropriate investment vehicles without realizing that it is only half job done. This calls for a need to demarcate the features and functions between the two so that savers can become investors and are aware of the fact that risking now is far better than putting everything on stake later. 

1. Risk - Risk is the key factor that draws a line between savings and investments. Any investment vehicle that guarantees the return of principal amount is categorized as a savings instrument. Bank deposits, fixed deposits, NSC or corporate deposits fall under this head whereas those avenues that aim to seek profits but also entail risk of losing principal amount are investment vehicles. Mutual fund investments, stocks, real-estate, forex are examples of investments.
2. Tenure of need - Savings works best when the need is short-term while it loses appeal over longer horizon. For instance, it is appropriate to park emergency funds into saving account or fixed deposit, but it would be unwise to leave retirement funds to sit into the same account. It will not be an exaggeration to state that retirement funds in a fixed deposit, or PF is another way to ensure that your retirement dream never comes true. 
3. Return - Investments, if done right, can fetch extraordinary returns versus savings by making your money work hard. For example, a fixed deposit could have returned an average of 9% to 10% returns while same amount, when invested in a stock, can deliver double returns. Savings seek interest but investments aim for profits and thus, higher return. 
4. Accessibility - Ease of access separates out investments from savings. Easier the access to funds, the higher likelihood that your money is working as mere savings and not investments. 
5. Inflation - Most  important factor to consider is how your money is encountering inflation effectively. Biggest drawback of savings is that interest earned is balanced out against inflation. So cash stacked at your home, money parked in bank deposits are not really working to benefit you but simply losing value with each passing day. On the other hand, investments strive to maximize wealth and aim to negate and grow beyond impact of inflation. 

What to Do Next?

Once these differences are clear, it’s time to pull out the statements and analyze if your money is really working or losing value. Do not fret if you discover that your savings urges did not evoke similar investment impulses as you can still make a difference by undoing the wrong.

If work is demanding and you find it difficult to set the ball rolling then reach out to a Financial Planner to help figure out things for you to help you become an informed investor from an assured saver.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. Reenika Avasthi is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Image Source: tfl.guide.com

Follow us on https://www.facebook.com/Inverika/