Investments vs Savings: How to differentiate and decide between two? These tips will help you
The desire to gain more money turns investments and savings into two most commonly used words for most people, especially the salaried class. Here is how differentiate and decide between two.
The desire to gain more money turns investments and savings into two most commonly used words for most people, especially the salaried class. But, many are unaware of the fact that both of them are separate concepts. It is important to save a part of the income but it is equally important to invest some money in financial products to allow it to grow and, importantly, beat inflation. Savings provide security but if an individual wants to create wealth, investments are the ideal route. Tax Expert Sunil Garg told Zee Business Online that any investor should maintain a mixed portfolio and should avoid putting all the money in one nest.
Garg said that investments are made for long-term goals and in most cases, have a lock-in period. There are a number of products available in the market where the money can be invested including Public Provident Fund (PPF), National Savings Scheme (NSC), National Pension Scheme (NPS), among others.
"Investments are made keeping in mind long term goals. The investors can put their money in bank fixed deposits for three to four years, or they can purchase a bond or National Savings Certificate (NSC). Most investments come with a lock-in period. So, long term goals have to be kept in mind," Garg said.
Savings, on the other hand, can be called cash in hand which could be used to meet every day expenses or meet sudden requirements.
"Savings come with liquidity which means you have cash in hand whenever you need it. For this, money could be put in savings bank account or, even in mutual funds. The money invested in mutual funds can also be claimed at anytime. Savings help you deal with day to day requirements or emergencies," Garg explained.
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How to differentiate between too?
Any money put idle and is not growing enough to beat inflation and comes with liquidity qualifies as savings. Garg said that investors need to keep in mind that savings are converted into investments. For example, Not everyone buys home for living. A few people purchase it for residential purpose, others simply buy it for investment purpose.
How to decide between investments and savings?
Garg explained that this depends on the requirements of the investor and risk factor. He said young investor would have different goal than a retired investor. "Youngsters often save for their marriage. Later, they start saving for their children. A 40 plus investor would be saving for children's marriage or their higher education. So, they invest accordingly," he said.
The investors should look at three factors before taking the decision:
1. Liquidity: The investors need to decide when they need the funds. This will decide the products they are purchasing.
2. Risk Factor: If the investor is looking at secure investment, government backed schemes with lesser returns are ideal.
3. Returns targeted: The desired returns also influence the ratio of investment and savings.
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