WHY IS INVESTING IMPORTANT

Savings v/s Investing

Saving is the excess of your income over your expenditure. Generally, this lies in the Savings bank account or in fixed deposits with a bank. The money is very safe, earning a small rate of interest and it can be in hand as and when required (high liquidity). On the other hand, this money could be invested for meeting long term goals in stock market and commodity market. While some investments may rise or fall in value over time, prudent investments would earn a lot more than the banks savings account.

It is important to take into account the effects of inflation on your investments. (Inflation is the rise in prices of goods and services. As the prices of these increases, the value of the rupee goes down and one will not be able to purchase as much with those rupees as one could have in the last month or last year). Savings rarely beat the inflation rate; investments can. In essence the difference between savings

and investment is that savings is simply idle cash while investments help your funds to grow over a period of time. One can meet his short term needs with his savings but to meet his long term goals in share market he needs to make invest ments. Savings primarily help to protect the principal while investments help to earn returns beyond the inflation rate.

What should be the investment objectives?

There are primarily three investment objectives: safety, returns and liquidity. In ideal scenario, this means that one would like the investment to be absolutely safe, while it generates handsome returns and also provides high liquidity. However, it is very difficult to maximize all three objectives simultaneously. Typically, one objective trades off against another. For example, if one want s high returns, one may have to take some risks; or if one wants high liquidity, one may have to compromise on returns and analysis a technical and fundamental knowlwdge in all equity market and commodity market.

 

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