Know the difference between Savings and Investment

Often, people are confused between the terms savings and investment and may use them interchangeably. However, these are quite different, and therefore, it is important to understand the difference between the two.

Savings

Savings is the difference between one’s income and expenses. It is the residue income. Generally, people set aside some money to meet emergencies or future needs or short-term goals. It is also advisable to keep aside some amount to meet your expenses for 3 to 6 months.

Investment

Investment refers to buying assets to earn returns and wealth creation in the long run. Investing is making your savings earn for you. Some investment avenues include real estate, stock, bonds, and mutual funds.

Since investments earn returns, they have some inherent risk. The more the risk, better the rewards, and vice versa. One can choose an investment product based on their risk profile and return expectations. For example, investors with low risk appetite may choose to invest in debt funds. Long-term investors with a relatively high risk appetite may choose to invest in equity and related instruments.

Key Points of Difference Between Savings and Investment

Liquidity

Savings are highly liquid. They are equal to having cash. Comparatively, investments have lower liquidity.

Returns

Savings earn no or very low returns. At times, the returns may be less than the inflation rate, thus may result in a negative yield in real terms. Investments have the potential to earn higher returns.

Risk

Risk in investment could be moderate to high, based on the investment product one chooses.

Objective

The idea of savings is to have money available in case of an emergencies or meet needs such as buying capital goods. Investing is predominantly done to earn returns and create wealth for long-term goals such as retirement, a new home, higher education, and so on.

Avenues

For savings, avenues include savings accounts and cash.
Investment avenues include mutual funds, real estate, stock, bonds, and more.

Savings or Investing, which is better?

To invest, you need to save first. Once you’ve kept aside some savings to tide over emergencies, it is important to invest to secure your financial future and growth. Investing can lead to capital appreciation and wealth creation.

Investing makes money work for you when the market conditions are favourable. Also, by investing in appropriate products, one can aspire to meet their financial goals, beat inflation, and secure financial independence.

When is the right time to start investing?

The time to begin investing is when you have surplus savings after keeping aside 3 to 6 months of expenses as an emergency fund. The earlier you start investing, the more the chances that you will be able to achieve financial freedom early in life.

Financial discipline is the first step to savings and investing. Take that first step now.

This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The material is prepared for general communication and should not be treated as research report. The data used in this material is obtained by Axis AMC from the sources which it considers reliable.

While utmost care has been exercised while preparing this document, Axis AMC does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Statutory Disclaimer: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC) Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.