Savings and investments are two fundamental aspects of personal finance. Savings refer to setting aside money for future use, typically kept in low-risk accounts such as savings banks or fixed deposits. On the other hand, investments involve putting money into financial products with the expectation of generating returns, albeit with varying degrees of risk.
Why Choose Savings?
Savings provide a safety net for emergencies and short-term financial goals. They are typically low-risk and offer guaranteed returns. Common savings options include:
- Savings Bank Accounts: Provide easy access to funds with minimal risk. Interest rates vary between 3-4%.
- Fixed Deposits (FDs): Offer higher interest rates than savings accounts, ranging from 5-7%, with a fixed tenure.
- Recurring Deposits (RDs): Allow regular monthly savings with fixed interest rates.
Here’s a comparison of interest rates and potential growth in savings accounts from leading banks:
| Bank | Interest Rate | Monthly Interest on ₹100,000 | Annual Interest |
| Axis Bank | 3.5% | ₹292 | ₹3,500 |
| IndusInd Bank | 4.0% | ₹333 | ₹4,000 |
Why Choose Investments?
Investments are aimed at wealth creation over the long term. They involve higher risk but also offer the potential for higher returns. Popular investment options include:
- Stocks: Ownership in companies, providing dividends and capital gains.
- Mutual Funds: Diversified investment in stocks, bonds, and other securities.
- Real Estate: Property investment, offering rental income and capital appreciation.
- Gold and Commodities: Traditional investments are known for preserving value.
- Cryptocurrency: Digital currencies that offer high returns but come with high volatility.
- Provident Fund (EPF/PPF): Long-term saving schemes with tax benefits.
- Corporate and Government Securities: Bonds and debentures issued by corporations and the government.
Comparing Savings and Investments
Here’s a table comparing various savings and investment options in terms of risk, returns, and liquidity:
| Instrument | Risk | Expected Returns | Liquidity |
| Savings Bank Account | Very Low | 3-4% | Very High |
| Fixed Deposits | Low | 5-7% | Medium |
| Recurring Deposits | Low | 5-6% | Medium |
| Mutual Fund SIPs | Medium | 10-15% | Medium-High |
| Stocks | High | 15-20% | High |
| Real Estate | Medium | 8-12% | Low |
| Gold | Low-Medium | 6-8% | Medium |
| Cryptocurrency | Very High | 20-30% | High |
Growth Potential of SIPs
Investing in mutual funds through Systematic Investment Plans (SIPs) is a popular way to build wealth over time. SIPs allow investors to invest a fixed amount regularly, benefiting from rupee cost averaging and compounding.
Here’s a comparison of how money can grow with SIPs on different platforms:
| Platform | Expected Annual Return | Monthly Investment | Value after 10 years |
| mStock | 12% | ₹5,000 | ₹11,23,000 |
| 5paisa | 11% | ₹5,000 | ₹10,56,000 |
| AngelOne | 13% | ₹5,000 | ₹12,00,000 |
| Appreciate Wealth | 10% | ₹5,000 | ₹9,84,000 |
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Post-Pandemic Financial Behavior in India
The COVID-19 pandemic has significantly altered the savings and investment landscape in India.
- Savings Bank Accounts: 77% of people prefer this for liquidity and safety.
- Mutual Fund SIPs: Chosen by 54% for higher returns.
- Fixed Deposits: Opted by 53% for guaranteed returns.
The pandemic has also driven a shift in financial behaviours:
- Increased Investments: Close to 70% of Indians have increased their savings and investments post-pandemic.
- Shift to Digital Platforms: There’s a rise in digital channels for banking and investing, with UPI and e-wallets seeing significant adoption.
The Rise of Retail Investors
The number of retail investors in the stock market has surged significantly post-pandemic. The number of active Demat account holders rose to 11 crores by January 2023 from 8.4 crores in 2022. Despite this growth, only about 3% of Indian households actively invest in the stock market, compared to 55% in the USA and 33% in the UK.
Several factors contributed to this trend:
- Lower Interest Rates: The low repo rate made it difficult for banks to offer higher interest on fixed deposits.
- Increased Disposable Income: Salaried individuals had more disposable income due to reduced spending opportunities during the lockdown.
- Digital Adoption: More investors turned to online platforms for trading and investment.
Both savings and investments are crucial for a balanced financial plan. Savings ensure liquidity and safety, while investments offer the potential for higher returns. By understanding the different instruments available and aligning them with your financial goals, you can achieve financial security and growth.
