Saving vs. Investing

The terms ‘investing and ‘saving’ are often used interchangeably. However, one must understand that they are entirely different concepts. Let’s understand the differences between the two.

Saving is the process of parking hard cash aside in extremely safe and liquid accounts or securities.

Investing is the process of utilizing the capital to purchase assets that have the potential to generate an acceptable rate of returns over a period of time. The best investments tend to be in productive assets such as bonds, stocks, real estate, gold, mutual funds etc.

Saving vs Investing

	Saving	§ Investing
§ Duration	It is ideal for the short term. Typically for smaller, shorter-term goals in the near future, like saving for a rainy day or an emergency.	§ It is usually incorporated for long-term goals. Investing may help you reach long-term goals, such as paying for your child’s higher education or marriage, planning for your retirement.
§ Returns	§ Savings earn interest. You can earn interest by putting money in a savings account, but savings accounts generally earn a lower return than other types of investments.	§ Investments have the potential to earn substantial returns. Investments in equity mutual funds for a long-term have tendency to earn interests around 15-18%
§ Access to cash	§ Savings provide ready access to cash whenever you need it, but several savings accounts limit how often you can withdraw money	§ Investments in longer to access invested funds. When you invest in a mutual fund, it could take a few extra days to access your money as compared to a savings account. §
§ Risk involved	§ Savings involve minimal risk.	§ Mutual fund investments are subject to market risks. Hence, there’s always a degree of risk involved when you invest in mutual funds.

Money kept in a safety vault, although safe does not generate adequate returns to beat inflation. Money invested in products like stocks, mutual funds, etc. is subject to risk but has the potential to grow over time.

Impact of Inflation on Savings

The primary objective of any type of mutual fund investment is to beat the inflation rate over time because with inflation the value of money corrodes over time. If the current cost of buying a loaf of bread is Rs 50, the same loaf will cost you Rs 108 in the next 10 years, given that the rate of inflation is uniform at 8%.

Hence, when you invest in mutual funds online, your main aim should be to earn returns that are higher than the rate of inflation. If you have a high-risk appetite, consider equity funds that harvest high returns in long tenure.

If your goal is to multiply your savings and create wealth, you should invest it so your money works to make more money. Thus, to become wealthy, all you need to do is invest in mutual funds regularly to beat inflation over time in line with your financial plans! Happy investing!