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The fundamentals of Investment

Back to Module 1

Chapter 1 : The fundamentals of Investment

3. Investment is a better option than Savings

Many new investors use these terms interchangeably. However, they have completely different roles in your financial plan.

Savings is the process through which you keep funds aside from your income for the proverbial rainy day. Typically, in cash, these funds come handy during emergency expenses or even certain planned expenses (small amounts) in the near future.

Investment, as defined above, is the process of purchasing an asset today with the hope that it will provide regular income or appreciate in value in the future. The funds invested may / may not be available during the times of need (depending on the investment option chosen).

Traditionally, people are tuned by their families to save money for the future. However, not many families have a history of investments which makes it a second choice. However, merely putting funds aside without investing them can be counterproductive for a variety of reasons:

Inflation – An inflation rate of 10% means that if you save ₹100.000 today, then after one year it will be worth ₹90,000 only. Saving without investing can eventually lead to a shortage of funds in the future when you try to use your savings. Many investment options offer returns factoring in the rate of inflation.
Small expenses corrode the savings – Liquidity is good for emergency expenses. However, having access to funds at all times can lead to unnecessary small-ticket expenses which can eventually eat into your savings.
Ill prepared for big-ticket expenses – Savings are good for short-term and small-ticket expenses. But for large-ticket expenses like children’s education or retirement planning, investments are a must.

The biggest benefit of savings is the liquidity it offers. By defining your investment objective to include a certain amount of liquidity, you can get the best of both the worlds. Savings come first, but it is investment that can help you build a future on the foundation provided by savings.

See Topics

Back to Chapter 1
1
What does Investment mean?
2
What are the ABCs of Investment?
3
Why is Investment a better option than Savings?
4
What are the different Investment options?
5
How important is it to start investing early?

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The fundamentals of Investment

Chapter 1 : The fundamentals of Investment

3. Investment is a better option than Savings

See Topics

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