Different Scenarios For Saving And Investment

Different Scenarios for Saving and Investment

Saving is that component of disposable income which is not used for present consumption. People do savings to accomplish their urgent requirements. It decides the level of investment done. It involves low or negligible risk and so is highly liquid. It also does not provide any returns.

Investment means investing the saved money in capital assets to generate profit. It is done with the aim of getting returns and also helps in capital formation. It is less liquid as it involves very high risk but also generates comparatively high returns.

Defining savings: -

Savings are that part of disposable income which the consumer accumulates for future use rather than use it for present consumption. It benefits in case of emergency or unexpected situations. A person who does savings on regular basis is financially sound and secure. There are different ways of saving money like depositing in savings account, pension account or investment fund, accumulating in the form of cash holdings etc.

When we consider a person’s income level then we realize that the wealth formation depends on savings. In fact saving is a building block of capital formation. As the income level of a person increases his saving capacity also increases. This happens due to increase in propensity to consume. A person is encouraged to save by his willingness to save and not by his saving ability.

Define Investment: -

Investment is the act of investing time, money, resources​ or efforts which could yield returns in future. Purchasing an asset with a view that it will grow and provide healthy returns in the years ahead, is also called an investment. The ultimate aim of doing investment is wealth creation in any form like capital appreciation, dividend, rental income, interest earning etc. Investment can be made in mutual funds, stocks, bonds, currency, deposit account, securities or assets. Thus, it is productive in nature as we can generate more money with same investment vehicle by taking help of various calculators;

Basic Differences Between savings and investments: -

1.      Savings is meant for future use. Investment refers to productive use over a period of time.

2.      Savings is done for urgent requirement. Investment is done to generate returns and for capital formation.

3.      In savings there is hardly any risk of losing money. Investment carries a high risk.

4.      In savings there is a nominal rate of interest. Investment yields higher returns.

5.      Savings are highly liquid and can be accessed any time.  It is not easy to access investment because selling is a time-consuming process.

In nutshell, we can say that saving helps in accumulating funds but does not constitute increase in wealth. Savings need to be put in productive uses. Saving is a factor responsible for investment which provides numerous options to invest your earnings. As it is said that “no pain without gain” so savings is associated with profit and risk. There should be a balance between the two because excess of savings lead to unemployment and excess of investment leads to inflation. Thus, both these terms have their own pros and cons.When you talk of savings it means you are concerned about securing your money and in case of investment it means your assets have the potential to grow and provide returns over a period.

Hence find the best place to save and explore the best investment avenue to assure safety and get secured returns. So, the underlying principle is first save then invests.

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