Difference Between Investment vs Savings
An Investment can be termed as an asset that is acquired for the purpose of income generation after a stipulated time frame. The philosophy of investment lies in the Investment goal of the Investor. Depending upon the priority of the Goal, the risk to return ratio is determined and so the selection of the Asset-class.On the other hand, Savings can be termed as the residue part from the Income left out after all the disposable expenses. Though savings cannot generate an extra return to the total amount but unlike some investment instruments it does not have a negative return.
Let us study much more about Investment and Savings in detail:
Investment options vary right from Stocks, Bonds, Mutual Funds, the Acquisition of Property, land, etc. This one thing must be noted that some investment instruments are risky in nature and thus they intend to generate higher returns also. In the case of savings, there is hardly any possibility of future gains if the money remains idle with the person. In the case of money lying with banks or in the form of deposits, the fund is expected to give a certain amount of return which is definitely lower than bonds or debentures.
The philosophy behind the Savings is basically to tackle unexpected Financial Emergencies or to meet short-term expectations like buying expensive gifts, going for a vacation, buying a two-wheeler, etc. which are not usually possible from stipulated income. Thus a person saves a certain amount from his income which is left out after all the disposable expenses and usually pays the savings during the purchase of certain items.
Asset class like an investment in stocks is highly volatile in nature as the rates depend on the Market value which is changing in nature. In the case of Bonds, they are ought to give a fixed return (6-7 percent) over a period of time and considered the safest bet. Instruments like Mutual Fund are very dynamic in nature. It may consist of pure equity, pure Debt, or a combination of Debt and Equity. Thus the investor should select according to the risk-taking ability and the desired goal of the investor. Over a longer period of time Equity has been the outperformer considering all the asset classes generating even one-hundred times in 10-15 years! Thus Fund managers allocate a certain portion of the funds to well-researched companies with healthy financials and sustain business outlook for the future. The majority of the savings are done to high yields bonds which contain a lock-in period of five to ten years. Certain government bonds are purchased for the motive of tax exemption. Whereas savings do not require these kinds of calculations, they are done with the bank accounts or simple cash holdings by the individual. The goal of savings is generally very short-term in nature and does not combat inflation. So over a period of time Savings proved as an erosion of the real value of money as the inflation rate is wiped out and the real value of the money decreases after each year.
Head to Head Comparison Between Investment vs Savings (Infographics)
Below is the top 4 difference between Investment vs Savings
Key difference between Investment vs Savings:
Both Investment vs Savings are popular choices in the market; let us discuss some of the major Difference Between Investment vs Savings:
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- Investment is the generation of asset appreciation through healthy returns whereas Savings is the left out portion that is kept as future unforeseen incidents or crises.
- Investment has several instruments like bonds, debentures, stocks, land and property, mutual funds etc. Saving is done on a cash basis by the individual or deposited in the banks.
- Inflation can be coping up by means of Investments whereas saving has no potential to combat with inflation and on the other hand, the real value of money tends to decrease in the case of savings.
- There is a possibility of a negative return on Investment when instruments like Stocks and shares are allocated in a higher amount because of the market volatility. But on the other hand, holding savings in form of cash cannot result in erosion of the nominal value of the funds. However, the real value tends to decrease as the purchasing power of the same amount of funds will result in lower commodities comparing to its earlier period.
Head to head comparison between Investment vs Savings
Below is the topmost comparison between Investment vs Savings
| The basis Of Comparison | Investment | Savings |
| Meaning | Related to an acquisition of an asset which leads to a healthy return in the future course of time. | Savings is the residue from the income left out after all disposable expenses. |
| Objectives | Primary objective investment is Asset appreciation over a longer time frame to meet certain long-term objectives like owning a property, marriages etc. | Savings are related to coping up with unwanted Financial needs, near-term expenditures like holidays, gifts, expensive items for personal needs etc. |
| Tax Concessions | Investments in certain Government Bonds are exempted from tax, whereas long-term investments in shares were earlier exempted from tax but it has been placed under 10% tax under ‘Capital Gains’ in the recent past. | There is no question of taxing idle cash savings as it has already taxed from the income from the person. On the other hand, when savings are made within banks, the interest amount is taxed when it crosses a certain amount. |
| Inflation and rate of return | Investment has the ability to combat with the inflation rate. Instruments like Bonds, debentures can only give a marginally higher return than inflation. On the other hand Equity centric funds has delivered an exponential return in a longer time frame beating inflation and generating healthy returns to the Asset invested. | Savings could not beat inflation; the nominal value of the money remains the same whereas the value of money in real terms tends to decrease over a period of time as the purchasing power tends to decrease over years. |
Conclusion
Investment vs savings both are generated from the Income of an Individual. Savings in the form of Cash that lies with the banks or with the individual and does not have the capacity to generate higher returns. Investment has always proved to give returns (moderate to higher depending on the type of instrument allocated) over time and it can combat inflation. Savings does not have the risk of capital depreciation like Investment (specifically stocks). I hope now you must have got a fairer idea of both Investment vs savings. Stay tuned to our blog for more articles like these.
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