Savings, one of the core components of personal finance, is essential to see off rainy days. In testing times, particularly during black swan events like Covid-19, savings became the lifeline for many and became a much-discussed topic.
However, there’s another aspect of money that’s equally important and necessary to achieve life goals - investment. While you should definitely save, you must also essentially invest to ensure you are on a solid financial footing.
While savings come to your aid when you require money all of a sudden or overcome a crisis, there’s another monster that’s constantly lurking around - inflation. Inflation brings down the buying power of money and has a decompounding effect on wealth. So, if your monthly expenses are Rs. 30,000 at present, at an inflation rate of 5%, they will be close to Rs. 80,000, 20 years later.
So, if you simply save and do not invest, your savings will not suffice to sustain you in the long run. On the other hand, investing will help you grow your money in tandem with inflation and make sure you have the money required to address your expenses.
Here too, you need to be mindful and invest in instruments that offer inflation-beating returns. This is where equity, as an asset class, can be helpful as it has the potential to deliver inflation-indexed returns in the long run. In other words, investing in equities can help you counter inflation and generate returns up and above it.
You can invest in equities either through stocks or mutual funds. If you are confident of tracking market movements and can read between the numbers, you can invest through direct stocks. If not, mutual funds are a better alternative as they help you diversify your investments and gain from the experience of the fund manager.
If you simply save by keeping your money locked in your almirah or bank savings account, it will not grow. Though a savings account offers an interest rate, it’s pretty low and doesn’t add any value to your money. On the other hand, money lying idle in the almirah doesn’t grow at all. However, things are different when you invest your money.
Irrespective of whether you invest in a fixed income instrument, such as a bank fixed deposit (FD), or market-linked products such as mutual funds, your money appreciates to a decent amount with time. Therefore, you must invest to grow your money and appreciate it with time.
It will ensure you have enough money with you when needed for addressing different life goals such as buying a car, undertaking a vacation, children’s higher education, and your retirement, among others. Investing ensures your goals don’t take a backseat due to the lack of funds. It also reduces your dependence on loans and other modes of finance to fulfill your dreams.
The Indian financial markets offer ample investment opportunities in a range of products. Invest as per your goal and risk tolerance to ensure you derive the maximum leverage to embark on your journey to financial freedom.
Source: Jagran