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Saving and investing money in the right avenues is one of the primary aspects of a good financial plan. For a common investor, the definition or meaning of saving and investment overlaps to a great extent. However, both the terms are different from each other.
Investment entails putting your money in market-linked avenues like equities and bonds. Alternatively, saving involves putting your money in a relatively zero-risk, non-linked instruments like life insurance savings plans, PPF, fixed deposits, etc.
Here is a list of some more differences between the two.
The money put aside for savings is usually for short-term purposes. They might range from going on a vacation to creating an emergency fund. The money is often utilised in the near term to provide the person with instant gratification. The savings money could also be used to pay for surprise expenses. If you are having difficulty developing a savings habit, you can start a money saving plan with your life insurance provider.
In investing, money is locked in for a longer period. Financial instruments that have a lock-in period of more than a year are considered long-term investments.
The savings money is parked in places that offer minimum returns or returns on the risk-free rate. Hence, the chances of losing your money are very low. Most people use their savings to create an emergency fund that could come in handy during turbulent times.
The risk is variable with investing. If you invest only in the top stocks, the risk will tend to be significantly lower as compared to investing in stocks of smaller companies. You should be careful not to invest your money in any dubious schemes like chit funds or pyramid schemes. Mutual funds, Unit Linked Insurance Plans or investments in indexed funds are considered safer options.
Life insurance companies in India offer a type of money saving plan that provides guaranteed1 returns and is a good avenue for saving. The savings policy then turns into a monthly income plan after maturity. You should remember that to earn a higher monthly income through such plans, you will have to pay higher premiums for a longer period.
The returns on investing fluctuate a lot. If you have managed to pick high quality stocks, at the reasonable prices, then you are likely to get an attractive return. However, if you buy low quality stocks, you have a high chance of getting sub-par returns on your money. Therefore, if you are not familiar with fundamental analysis or technical analysis of companies then you might want to invest in actively managed funds. Through investing in funds, your losses will be mitigated, and you will have a high chance of earning a decent long term return.
The savings money is highly liquid as it is held in easily accessible accounts. Since most savings accounts also act as an emergency fund, you would want to put your money in a place where you can retrieve it easily without jumping through loops.
However, that is not the case in investing. Most people invest their money to earn a decent return. There is also a high risk of losing a significant chunk of your capital through bad investing strategies. You will also have to wait for a few days before you can withdraw your entire capital. Therefore, investing accounts should not be used as emergency funds.
There might be a lot of difference between saving and investing, but they have one common role. The common role of saving and investment is to create a corpus that would help you during your retirement years. The saving habit forces you to create emergency funds to face short-term uncertainties.
On the other hand, investing allows you to secure your long-term future. There are multiple financial schemes to help you with this if you are too afraid to invest your money in volatile markets. A money saving plan is one such scheme that will help you create a fund for your eventual retirement.
Saving and investing are not mutually exclusive events. To invest money, first, you will have to save money. The money that you earn from investing should go into savings for your retirement. Therefore, before you can start your journey to build generational wealth, you will first have to cultivate a wonderful saving habit.
First, you must create an emergency fund. To create an emergency fund, you will have to save an amount equivalent to six months of your expenses. After the fund has been created, the next step is to identify your short-term and long-term goals. Then you will have to manage your investments and savings ratio based on your needs.
Whether it is retirement planning or savings for major life goals, Tata AIA has got you covered. Tata AIA offers multiple money saving plans with a myriad of features. The savings plan also comes with life coverage. You also have the option of extending the cover to your spouse by using the add-on rider# options.
Tata AIA payment methods are also easy to use with a friendly user interface. Some plans also provide bonuses2 after the maturity of the plan. You can visit our website to learn more about the life insurance savings plan.
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Insurance cover is available under the product.
The products are underwritten by Tata AIA Life Insurance Company Ltd.
The plans are not a guaranteed issuance plan, and they will be subject to Company’s underwriting and acceptance.
For more details on risk factors, terms and conditions, please read the sales brochure carefully before concluding a sale.
This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry
#Riders are not mandatory and are available for a nominal extra cost. For more details on the benefits, premiums and exclusions under the riders please refer to the Rider Brochure or contact our Insurance Advisor or visit our nearest branch office.
2These bonuses are not guaranteed in nature. The Company may declare a Cash Bonus rate annually in advance. The Cash Bonuses if declared will be applicable provided all due premiums have been paid.
IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
Past performance is not indicative of future performance.
All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
Please make your own independent decision after consulting your financial or other professional advisor.