What is the difference between saving and investing?
Most of us use the term saving and investing interchangeably. However, if you want your money to work for you, it is important to understand the difference between the two. Saving is a passive decision, investing is active. So, if you earn ₹1,000 and spend ₹800, you save ₹200. This ₹200 accumulates in your savings account by default, or you may route it into a recurring deposit, fixed deposit or a money market fund. People who save do not want to take any risk with their money. They certainly do not want ₹200 to drop to ₹190. They expect capital to be secure, even if returns are low.
Investing is a different ball game. When you invest, you expect to take some risk and hence be compensated for the additional risks. You want to generate returns that are higher than inflation, so you can plan for your long-term goals such as children’s higher education or retirement. Clearly savings will not help you meet long term goals, since the post-tax returns from such investments barely beat inflation. Savings are meant to meet short term goals or expenses. You do not want to hold on to too much savings because the opportunity for this money to grow is limited.
By Nandini Amogh
Financial Advisor