Make a list of all the things you want to buy, or do, in life - from buying the latest smartphone to travelling to the most exotic destinations of the world, and anything else you fancy.
What are you doing to make these aspirations come true? Saving, or investing?
Saving, investing; most people think they’re the same, but definition and execution make them very different.
If you’ve saved for your wish list, chances are you’ll be back to square one once you’ve utilised the funds.
However, if you take those savings, and invest them in in stocks, ulip, mutual funds, gold, real estate, or other financial instruments that could grow your wealth, you would be able to fund all your dreams as well as be financially secure for the future.
This is the difference between savings and investment and yet, both play a fundamental role in financial planning.
What is the difference between savings and investment
The biggest difference between savings and investment is the level of risk you can afford. Want your capital to be safe and are content with steady returns even if they are low? Then bank accounts, bank fixed deposits, government bonds, debt funds are your trusted savings partners.
But if you have king size aspirations that require king-size funds, seek skyrocketing returns, and are willing to take risk to achieve them, then stocks, shares, ULIPs, Investment Plans and real estate is where your money should be.
Also read: ULIPs or Mutual Funds – Which One to Invest In?
Having said that, both savings and investment are interdependent and equally important to accumulate money.
So how are they different?
SAVING
| INVESTMENT
|
Helps achieve short term goals that require low investment, such as buying an appliance or planning a family vacation; or to buffer against emergencies
| Invest for long term goals that need bigger budgets, such as children’s higher education or buying a house, as it grows your savings much faster & bigger with the help of compounding.
|
Usually maintained in bank accounts or bank fixed deposits, which can be readily accessible
| Stocks, ULIP, and mutual funds have a slightly longer wait and may not be favourable to liquidate depending on market volatilities
|
Lower interest rate with assured returns, which makes it a safer option
| Potential to earn higher returns but can be unreliable as it depends on market performance
|
Your capital stays protected
| In the event of unfavourable conditions, you could lose not just profits but also all your earnings including the capital
|
Does not protect against inflation
| Better protection against inflation
|
Risk and returns go hand in hand in savings vs. investment
Like saving and investment, risk and return are also interrelated. The general principle is that the greater the risk, the greater the potential for high returns. Similarly, the lower the risk, the lower the return, as you would have seen in your savings account or bank fixed deposit.
Return is the financial gain from investing in a certain instrument and is paid as interest or dividend. High and low returns are what outline the difference between savings and investment. Here is an explanation of risk and return in detail.
If you want to invest for a long term goal, and have a timeframe of say at least 5-7 years, you must consider the risk and return. Risk depends on factors such as market volatilities, speculation, inflation, global or economic events, as well as the time and duration of investment. If something were to go wrong, you could earn profits that are lower than expected or worse, lose your entire investment.
Before transferring your hard-earned savings to an investment, make sure you study it thoroughly or seek the advice of a finance professional for the same.
Also read: Don't Let Delays Drain Your Wallet: The Definitive Guide to Saving Wisely
Savings vs. investment: get the best of both worlds
You need both strategies - savings and investment - to be able to grow wealth and achieve your financial goals faster. When switching from saving to investment, keep a threshold amount for expenses and contingencies. Anything above that should be invested for long term gains. You will earn better returns and stay protected from inflation. You’ll also be able to generate wealth to fund your future aspirations.
Here is a solid game plan to make it easier to incorporate both these strategies into your financial planning. Try to set aside at least 25% of your monthly income, which can be further split up into investment and an emergency fund. Your emergency fund should be adequate to cover your living expenses for at least 6 months. You can vary the above values depending on your income and expenses.
Another way to do this is by budgeting your expenses and sticking to it. The money that’s left after can be invested towards building a corpus for long term goals.
Where to invest
IndiaFirst Life has some of the best savings and investment plans to kickstart your financial planning.
Investment Plans:
IndiaFirst Life Radiance Smart Invest Plan offers the utmost safety with 10 fund options and unlimited switches that let you control your investment, to take advantage of changing market conditions. Zero allocation charges also give you more returns on your investment.
IndiaFirst Life Guaranteed Single Premium Plan guarantees 7X** returns on investment for a policy term of 30 years, on a one-time payment.
Savings Plans: IndiaFirst Life Guarantee Of Life Dreams Plan is a life insurance plan that helps you with a regular income from as early as end of 1st policy^ month. A savings solution that creates a second source of income, to provide financial protection for your family and beat inflation.
IndiaFirst Life Guaranteed Protection Plus Plan is a unique term life insurance plan structured to protect your family, even if any unexpected misfortune were to happen. Plus, its diverse options help you find the plan that best suits your needs.
Whether it’s savings or investment, the earlier you start, the better! A financial expert will be able to find the right solutions after thoroughly assessing your situation.
Disclaimer: **All the benefits under this plan are guaranteed as long as the policy remains in force. 7 times returns applies to a policy term of 30 years only. Premium considered is exclusive of GST, applicable taxes or extra premium, if any.
^Only if Immediate Income option with Monthly income payment frequency is chosen. Income will be paid at the end of the month.
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