Basics

Basics of Finance
What is the difference between saving and investment?

Although savings and investment can be used for meeting various expenses in life, there are some major differences between them. Here's throwing light on some of them.

Come month end, and it is time to decide what you want to do with the money leftover after paying off all the expenses. You would typically have two options: you can either save it or invest it. Many people wrongly assume that both the concepts are same. However, there are some major differences between the two. Let us understand these two concepts in detail.

Saving means keeping aside a part of your income . Investment means putting that money in financial products to earn returns and grow your wealth.

Meaning

Saving money means keeping aside a part of your income regularly in order to deal with unexpected expenses. Investment means putting your saved money in various products in order to earn returns and grow your wealth.

Time

Savings are usually used to meet your short term needs. People save in order to deal with emergency situations and meet unexpected expenses. However, investment generally entails a longer horizon of six months or more. It is designed to provide returns and grow your money over a period of time.

Risk and reward

Another difference between savings and investment is the risk they bear and returns they offer. While savings stored in a safety vault are very safe, they will not generate any returns over the years. Even if money is kept in a savings account, it will provide a negligible rate of return. On the other hand, money invested in various products like stocks, mutual funds, gold, etc. is subject to more risks, but has the potential to grow over time. If invested wisely, your money can grow manifold over years.

Liquidity

When it comes to liquidity, your savings are the most liquid assets, as they can be accessed at any time. However, this is not the case with investments. It takes a few days for the money to reach your bank account after you decide to sell your investments.

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