Savings and Investments

It can be frustrating for anyone, right from a 21-year-old financial enthusiast to a 35-year-old or 45-year-old guy, to wake up and realise that they are not where they want to be financially.

So what’s the key? Nobody actually has a magic wand or Laxmi Chit Fund where they can actually double the money in a fortnight. We have been given the actual wand, i.e., savings (the first step to financial stability and growth) right from childhood. When you used to purchase stuff for Rs. 18 from a Rs. 20 note, and when you returned home, your mom used to tell you to put those 2 rs in your piggy bank, which would actually boost your savings a little.

Getting into the definition: Savings, therefore, represents a net surplus of funds for an individual or household after all expenses and obligations have been paid.

Why do savings play such a crucial role? I guess during the COVID period, everyone realised the importance of savings. Savings actually backs you up like your parents did during your adolescence. Go, learn, explore. If something goes wrong, I will be there for you.

Savings constitute any form of money or equivalent saved by you. In simple terms, your income, less expenses, is your savings. People may save for various life goals or aspirations, such as retirement, a child’s college education, the down payment for a home or car, a vacation, or several other examples. You need to save first if you need to grow your financial assets.

If one is unable to maintain savings, they may be said to be living pay check to pay check. If such a person experiences an emergency, there is often not enough money saved up to live on and they may risk falling into debt or bankruptcy.

Suppose, for example, you save a lot. Is that going to help you out, actually? Probably yes, during an emergency or so, but that is not what’s meant for you. The ideal cash you have in your savings actually needs to be channelized in such a way that your money actually gets multiplied over a given period of time. The process of actually channelizing the funds is called investing. Investing comes with a risk, i.e., in the case of money not being invested properly, it may lead to losses where you might actually lose a part or a major chunk of your savings as well. But as said, ships are safest on the shores, but that’s not what they are meant for. So, investing does come with a risk, but it is necessary to evaluate the risk properly so you can reap the rewards later.

Investing is the act of allocating resources, usually money, with the expectation of generating an income or profit. You can invest in endeavours, such as using money to start a business, or in assets, such as purchasing real estate in the hopes of reselling it later at a higher price.

In investing, risk and return are two sides of the same coin; low risk generally means low expected returns, while higher returns are usually accompanied by higher risk. Risk and return expectations can vary widely within the same asset class. A blue-chip that trades on the NYSE and a micro-cap that trades over-the-counter will have very different risk-return profiles. The type of return generated depends on the asset; many stocks pay periodic dividends, while bonds pay interest every quarter.

Investors can take the do-it-yourself approach or employ the services of a professional money manager. Whether buying a security qualifies as investing or speculation depends on three factors: the amount of risk taken, the holding period, and the source of returns.

There are some common types of investments. They are as follows:


      A buyer of a company’s stock becomes a fractional owner of that company. Owners of a company’s stock are known as its shareholders and can participate in its growth and success through appreciation in the stock price and regular dividends paid out of the company’s profits.


     Bonds are debt obligations of entities, such as governments, municipalities, and corporations. Buying a bond implies that you hold a share of an entity’s debt and are entitled to receive periodic interest payments and the return of the bond’s face value when it matures.


     Funds are pooled instruments managed by investment managers that enable investors to invest in stocks, bonds, preferred shares, commodities, etc. The two most common types of funds are mutual funds and exchange-traded funds, or ETFs. Mutual funds do not trade on an exchange and are valued at the end of the trading day; ETFs trade on stock exchanges and, like stocks, are valued constantly throughout the trading day. Mutual funds and ETFs can both passively track indices.

Savings and investments go hand in hand. If one utilizes it in the right way, he or she can make his/her financial investment dream come true. Thus, investing is not a concept only for wealthy individuals; it is for everyone, even with a small amount of savings, to actually start investing.

Mithibai – BFM 2021

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