Investment vs savings

Difference Between Investment vs Savings

An Investment can be termed as an asset which is acquired for the purpose of income generation after a stipulated time-frame. On the other hand, Savings can be termed as the residue part from the Income left out after all the disposable expenses. 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. Investment options vary right from Stocks, Bonds, Mutual Funds, Acquisition of a Property, land etc. This one thing must be noted that some investment instruments are risky in nature and thus they intend to generate higher return 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 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 with 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.

Though savings cannot generate an extra return to the total amount but unlike some investment instruments it does not have a negative return. Asset class like 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 as the safest bet. Instruments like Mutual Fund are very dynamic in nature. It may consist of pure equity, pure Debt, or 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 class generating even one-hundred times in 10-15 years! Thus Fund managers allocate a certain portion of the funds into well-researched companies with healthy financials and sustain business outlook for the future.  Majority of the savings are done to high yields bonds which contains a lock-in period of five to ten years. Certain government Bonds are purchased for the motive of tax exemption. Whereas savings does 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 the 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.

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:

• Investment is the generation of asset appreciation through healthy returns whereas Savings is the left out portion which is kept as future unforeseen incidents or crisis.
• 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

Investment vs Savings – Final Thoughts

Investment vs savings both are generated from the Income of an Individual. Savings is the form of Cash which 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 the time and it can combat the 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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