Savings is that part of your income, which you save for future needs. In modern era, the additional money parked in banks is largely regarded as savings.
By standard definition, the wealth that is safely kept at home with no intention of using it to purchase any goods or services is called savings. It is a risk-free venture, assuring your wealth will be secured, but may or may not appreciate over time.
In contrast, money or savings that is kept in any instrument that makes it appreciate is known as investment. Investment could be anything from putting your money into capital markets, bonds, buying precious stones or perishable commodities to buying buildings.
A good investment gives handsome financial rewards, but there are risks associated with it too.
The main difference between the two is that a good investment can fight rising inflation, while the savings won't.
Suppose, you have Rs 100 in hand and the rate of inflation is likely to hover at 10 per cent going ahead.
This means, in a year's time you will need Rs 110 to buy a bucket of commodities that you can purchase for Rs 100 today.
Now, the money that is kept in your almirah cannot produce this additional Rs 10. Neither the low interest rates you receive from a bank's savings account can compensate for the rise in prices due to inflation. Only investments can.
The basic principle of investment is that the more the risk involved, the better will be the returns.
Investment in any business involves risk. Buying stocks and commodities is also considered a risky affair. But gold has always been considered a safe haven.
