A lot of people fail to understand the difference between savings and investments and often use these terms interchangeably. While both are equally important, their purpose differs. The keywords that distinguish the two terms are Risk and Liquidity.
Savings are short term funds which are liquid in nature and can be withdrawn easily to achieve your short term goals. On the other hand, Investments are long term funds intended for wealth building, yields high returns but cannot be withdrawn easily. Investments are to fulfill long terms goals such as child’s higher education, child’s marriage, building a house, retirement planning, etc.
Let’s look at an example:
Shruti and Alok, married for 4 years, have a 1-year-old son, Shlok. They are a working couple who have been paying their home loan for the last 3 years with another 17 years to go. As and when they manage some savings, they open a fixed deposit account as they believe it’s the safest and quickest way to access their funds, especially during an emergency.
It’s good to have control over your savings with the flexibility of using it as you wish, however, it’s not the best formula if you want to build a corpus for your future.
Let’s list down some key financial goals that Shruti and Alok should aim for:
- Pre-Closure of Home Loan- Instead of paying their loan for the next 17 years, wouldn’t it be great if they can wrap up their debt within next 10 years or so.
- Education of child- considering the rising inflation rate and increasing
costof education, the parents definitely need to build a corpus for Shlok’s education.
- Retirement- With increasing life expectancy rate, the post-retirement period has become an important phase for which you need to save.
The interest rate earned on a Fixed Deposit is roughly around 7-10% annually which is less than the inflation rate of education and healthcare. So is their savings really multiplying?
There are a lot of investments options today such as Mutual Funds, Stocks, etc. but the advantage with insurance is that it offers a dual combination of life protection and investments.
Practically, Shruti and Alok should start investing in a Child and Retirement plans which will allow them to have investments specific to their goals. Consulting an expert, like an Insurance Broker, should be the next step as they will be in better position to analyze Alok’s needs and suggest him the most appropriate plans.
Birla Sun Life Vision Life Income, Edelweiss Wealth builder, etc. are some of the most sought after plans for investments. For more information on these plans call us at 86559 86559 or send us an email at email@example.com.