Financial planning for the future is diversified with various financial products. Savings and investment plans are predominant and prove beneficial in the long term. When choosing between savings and investment plans, it is important to understand the difference to maximise benefits. Let us understand what they mean and later know the differences here.
What are Savings Plans?
A savings plan for future financial needs is a way to accumulate a portion of your income regularly to make it a large corpus in the long term. With an insurance savings plan, you can benefit from receiving a life cover while ensuring guaranteed returns on maturity. You can also customise the plan based on your preference to serve your financial needs appropriately.
For instance, the Tata AIA life insurance plan with life cover and savings benefits offers the option to receive the guaranteed returns as a regular income for a defined income period or as an endowment benefit. Therefore, it is a safe and secure method to increase your savings.
What are Investment Plans?
Investment plans are financial products that help you invest money to create wealth for future financial needs. It can be investing in real estate, financial securities, and other similar products that appreciate capital. You have to choose the investment plans based on your risk profile to secure your returns. Also, you can combine investment and life cover in a single life insurance policy such as ULIPs.
Saving vs Investment Plans
Understanding the difference between savings and investment plans help you make smart financial decisions in life. Here are a few factors to help them distinguish better.
- Purpose – Purpose is another important factor that helps you identify the right financial product for your financial needs. If you want to secure a portion of your income safely for your future financial needs or defined money goals, you can choose a savings plan in India. On the other hand, choose an investment solution if you intend to appreciate your capital for future financial needs and can afford to take a quantifiable risk.
- Risk – Savings and investment plans differ based on the risk involved in the financial product. Insurance savings plans are highly secure as they reserve your savings in the long term to provide it as a guaranteed return on maturity while providing a life cover. If you have parked your funds in a savings plan, you can stay peaceful without monitoring the risk factors that affect your fund value.
On the other hand, as investment plans are based on market movements, it involves a huge amount of risk. However, you can secure your money by investing based on your conservative or aggressive risk appetite. With adequate knowledge and experience, you can appreciate your capital by choosing the right products based on your income and future financial needs.
- Liquidity – Liquidity is an important factor that determines the purpose of your financial assets. As the amount in your savings plan gets added periodically, you can open it to receive the saved funds accumulated for an emergency or other purposes.
However, as investment plans are based on external social, economic and political factors that affect the market price movements, the invested fund may vary in value, either increased or decreased. Therefore, while you have the flexibility to take out money from your savings and investment plans based on the product features, it is always advised not to do so to help your fund increase in value in the long term.
Savings and investment plans have distinct policy features. First, understand the difference between savings and investment to know the right solution for your requirements. Second, evaluate your steady flow of income and future financial commitments and then choose the right product for your financial needs. And, to maximise the benefits, stay invested in your savings or investment plans in the long term!