The BuyT Desk
Investing your money may sound hard, or people may tell you that it requires effort and knowledge, but the truth is, it just requires initiative. Just begin investing with some due diligence, and eventually, it will come to you naturally. If you start investing right now, your future and the future of your children will become secure. In contrast, if you believe in savings, your money may be safer, but it will not increase just by sitting there. Banks may offer you a lower risk, but the interest you will get on your savings account will not keep up with inflation and increasing taxes.
Let us elaborate upon how investment has the upper hand over saving.
1) Higher returns
Investing can bring you fantastic returns! Once you get the hang of it, everything goes in the right direction. While a savings account generates an interest of 2-3%, an investment may generate a return of 5% and higher. There will also come a time when you will earn compound interest on your investments, which means incurring interest over interest.
2) Availability of numerous investment options
You have the option to choose from thousands of investment possibilities available in the market. There are different asset classes, such as equity, bonds, gold, and real estate. At a time, usually many schemes run under each asset class. For example, in equity class, ELSS (Equity-linked Saving Scheme) gives you the benefit of higher return and saves tax. Select the most suitable investment option according to your financial goal, budget, and investment horizon. If you are scared about the risks involved, you can even invest in more than one option to lower your potential risk. Asset allocation and diversification are key to reduce the risk associated with the investment.
3) Investments provide a tax benefit
By investing your money, you can also save a big deal in your taxes. You have to pay tax on the interest earned in a saving account greater than Rs.40, 000 or Rs.50, 000 (for senior citizens). In the case of equity mutual funds, the return of Rs.1 lakh is tax-free. Above Rs.1 lakh, the return is taxed as per the Long-Term Capital Gains (LTCG) tax of 10% instead of your income tax slab. There are certain investments, which focus entirely on saving tax, such as PPF.
4) Investments can help deal with inflation
The value of cash does not increase over the years. Thus, merely saving money will not protect you against inflation every year. Cash sitting idle will lose its purchasing power with time. On the other hand, investing money will increase your purchasing power in the long run. If done wisely, returns from long-term investments can overtake the rate of inflation.
5) Reaching financial goals
If you have dreams for the future, and you not only want to save but increase your financial capability, investing is the way to go. A fixed deposit for 5 years can give you a tax benefit and help you generate a corpus for your child’s education. A savings account will keep your money safe, offer meagre interest, and not provide any tax benefit. If you dream of an extravagant retirement, invest your money than saving it.
Some wise words from a world-renowned investor, Warren Buffet, read as, “If you don’t find a way to make money while you sleep, you will work until you die”. Thus, reclaim your bright future by investing your saved money wisely in some low-risk investments.
