Investments and Savings - todaypassion

The words savings and investment are often used interchangeably but there is a significant difference between them.
Savings is defined as keeping money a side for future purposes with little or no return on it. Savings are subject to low risk and so the returns are low.
Fixed deposits is the best example for savings.

Where as investment is letting your money to grow at a higher rate by exposing it to higher risk.
Investing into real estate, mutual funds, shares, bonds etc are the examples for investments.

For example let us say you saved Rs.2000 in your wallet today. After a year the 2000 worth today may not be the same as a year ago(Inflation effect). This actually reduces the time value of money. Instead, if you invested the same with available investment options it would have grown your investment with time.

One need to know the differences to get more valuable returns with inflation. Inflation increases the cost of living and decreases the purchasing power which makes a good worth Rs.100 costs you Rs.105 if the inflation is 5% per annum. The investments should be made in such a way to earn more than inflation.

The investment earns a return on idle savings. It makes a provision for an uncertain future. A detailed analysis should be made before investing in order to reach expected returns.

When to Start Investing?

Sooner the better. By investing early you give your investments more time to grow. The compounding effect increases the principal and interest accumulation.

1)Invest early
2)Invest regularly
3)Invest for the long term but not for the short term