Difference Between Savings and Investment Plans

Savings and investment plans are important financial tools with different purposes. Savings plans involve keeping money in safe, easy-to-access accounts for short-term needs or emergencies. Investment plans focus on growing money over time by putting it into ULIPs, stocks, bonds, or mutual funds, which have higher risks but can offer higher returns. Understanding the difference between savings and investment plans helps you manage your finances better.

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What is a Savings Plan?

Saving is a method of regularly setting aside money, typically in a bank account, to achieve short-term goals or create a safety net for unexpected expenses. Think of it as storing money for rainy days or specific purposes like a vacation or buying a new gadget. Savings plans usually offer lower risk and returns than investment plans.

What is an Investment Plan?

An investment plan is like planting seeds to grow a money tree. It involves putting your money into various assets like Unit Linked Insurance Plans (ULIPs), stocks, bonds, real estate, or mutual funds with the aim of increasing its value over time. Unlike savings, investments come with risks, but they also offer the potential for higher returns.

Best investment plans are best for long-term financial goals like retirement, buying a house, or funding education. They require careful research and consideration to balance risk and reward.

Difference Between Savings and Investment Plans

The following table provides a clear and concise overview of the key differences between Savings and Investment Plans. This makes it easier to understand the key distinction between them and choose the most suitable investment option in India based on individual financial goals and risk tolerance.

Aspect Savings Plans Investment Plans
Purpose To accumulate funds for short-term goals or emergencies To generate returns over the long term for goals like retirement or wealth accumulation
Risk Level Generally low risk Can vary from low to high risk depending on the investment chosen
Return Potential Typically lower returns Potentially higher returns, but also higher risk
Liquidity High liquidity, easy access to funds Less liquidity, funds may be tied up for a period of time
Investment Vehicles Savings accounts, CDs, money market accounts Stocks, bonds, mutual funds, ETFs, real estate, etc.
Time Horizon Short to medium-term (1-5 years) Long-term (5 years or more)
Objective Preserving capital and earning modest interest Capital appreciation and wealth accumulation

Hence, best savings plans are designed for short-term goals with low risk and high liquidity, while investment plans aim for long-term goals with varying risk levels and potentially higher returns but lower liquidity.

Why Should You Invest in a Savings Plan?

  • Financial Security: Provides a safety net for unexpected expenses.

  • Goal Achievement: Helps you save for specific goals like a home, education, or vacation.

  • Regular Savings: Encourages disciplined and consistent saving habits.

  • Interest Earnings: Generates additional income through earned interest.

  • Tax Benefits: Offers potential tax deductions and benefits.

  • Emergency Fund: Acts as a readily available fund for emergencies.

  • Wealth Growth: Assists in gradually increasing your wealth over time.

  • Financial Planning: Simplifies budgeting and financial management.

  • Peace of Mind: Reduces stress by ensuring you're financially prepared for the future.

  • Retirement Savings: Contributes to a secure and comfortable retirement.

Why Should You Buy an Investment Plan?

  • Wealth Growth: Helps in growing your wealth over time through disciplined investments.

  • Financial Security: Provides a safety net for future financial needs and emergencies.

  • Tax Benefits: Offers potential tax savings, reducing your taxable income.

  • Retirement Planning: Ensures a steady income post-retirement, supporting your lifestyle.

  • Goal Achievement: Assists in achieving long-term financial goals like buying a house or funding education.

  • Inflation Protection: Helps protect your money from losing value due to inflation.

  • Risk Management: Diversifies your investment, reducing risk through a mix of assets.

  • Regular Savings: Encourages consistent saving habits, promoting financial discipline.

  • Capital Appreciation: Aims for capital growth, enhancing your net worth over time.

  • Peace of Mind: Offers financial stability and peace of mind.

Best Savings and Investments Plans in India in 2024

Plan Type Key Features Ideal For
Unit Linked Insurance Plan (ULIP) Insurance + investment, tax benefits, market-linked returns, managed by professionals Dual benefits of insurance and investment
Guaranteed Return Plans Fixed returns, low risk, long-term saving, tax benefits Risk-averse investors seeking guaranteed returns
Capital Guarantee Plans Capital protection, limited market exposure, tax benefits Investors seeking capital protection with some growth
Child Plans Long-term saving, child's education/marriage, insurance cover Parents saving for child's future
Pension Plans Regular income post-retirement, tax benefits, various annuity options Individuals planning for retirement
Annuity Plans Lifetime income, various payout options, tax benefits Retirees seeking a steady income stream
Public Provident Fund (PPF) Tax benefits, risk-free, 15-year lock-in period, attractive interest rate Long-term savings
National Savings Certificate (NSC) Fixed income, tax benefits, 5-year maturity, risk-free Safe investment with moderate returns
Mutual Funds Flexible investment, potential high returns, managed by professionals Long-term wealth creation
Fixed Deposits (FD) Guaranteed returns, flexible tenure, low risk Short to medium-term savings
Senior Citizens' Savings Scheme (SCSS) High interest rate, tax benefits, risk-free, 5-year maturity Retirees seeking regular income
Sukanya Samriddhi Yojana (SSY) High interest rate, tax benefits, security for girl child's future expenses Parents saving for a girl's education and marriage
National Pension System (NPS) Retirement-focused, tax benefits, market-linked returns Long-term retirement savings
Post Office Monthly Income Scheme (POMIS) Fixed monthly income, low risk, 5-year maturity Regular monthly income with low risk

How Much You Should Save and Invest?

Deciding the amount of savings and investments you should make depends on several factors, like your income, age, financial goals, and risk tolerance. However, you should consider the following points to determine your savings and investments:

  1. Start with the 20% Rule:

    • Aim to save and invest at least 20% of your income.

    • Split this into 10% for savings and 10% for investments.

  2. Emergency Fund First:

    • Build an emergency fund covering 3-6 months of living expenses.

    • This ensures financial security in case of unexpected events.

  3. Retirement Savings:

    • Contribute to retirement accounts like 401(k) or IRAs.

    • Aim for 15% of your income for long-term growth.

  4. Debt Prioritization:

    • Pay off high-interest debts before heavily investing.

    • Focus on debts with interest rates above 7-8%.

  5. Investment Diversification:

    • Spread investments across stocks, bonds, and real estate.

    • This reduces risk and enhances potential returns.

  6. Regular Contributions through SIP:

    • Make consistent contributions through Systematic Investment Plan (SIP) to your savings and investment accounts. Automate transfers to simplify the process.

    • Use an SIP Calculator to determine your maturity amount through your SIP investments.

    • Enter different amounts and durations to find the best SIP Plan for you.

  7. Review and Adjust:

    • Regularly review your financial goals and progress.

    • Adjust savings and investment strategies as needed.

In Conclusion

Savings plans are low-risk and provide easy access to funds for short-term needs and emergencies. Investment plans, while riskier, offer higher returns and are better for long-term financial growth. It is helpful to know the difference between savings and investment plan in balancing safety and growth in your finances.

Frequently Asked Questions

  • What is the difference between a savings plan and an investment plan?

    The key differences between saving and investing boil down to:
    • Risk: Savings offer minimal risk, while investments involve varying degrees of risk depending on the asset chosen.

    • Returns: Savings accounts and CDs offer guaranteed, but typically low, returns. Investments have the potential for higher returns, but these returns are not guaranteed and can fluctuate with the market.

    • Time Horizon: Savings are suitable for short-term goals where you need easy access to your money. Investments are geared towards long-term goals where you can ride out market ups and downs.

    • Goal: Savings plans focus on preserving your principal amount. Investment plans focus on growing your wealth over time.

  • Which one is better, saving or investment?

    There is no single better option, as both savings and investments play a role in a healthy financial plan:
    • Savings: Essential for building an emergency fund and saving for short-term goals. It provides peace of mind knowing you have a financial safety net.

    • Investments: Important for growing your wealth and achieving long-term goals. Investments allow you to potentially outpace inflation and accumulate a larger sum over time.

  • Is a savings plan an investment?

    No, not necessarily. Traditional savings plans like savings accounts and CDs are considered low-risk places to park your money, but they may not be classified as true investments due to their minimal growth potential.

    However, some savings plans offered by banks or insurance companies might be investment-linked. These plans may offer some potential for higher returns alongside a guaranteed minimum amount. It is important to carefully review the details of any savings plan before deciding if it aligns with your financial goals.

  • What is the main difference between saving and investing?

    The main difference between a savings plan and an investment plan is that saving prioritizes security and accessibility for your money while investing aims for growth over time and may involve risk.
  • Which plan is better for short-term goals?

    Savings plans are ideal for short-term goals (under 3 years) like a vacation, as you can easily access your money.
  • What about long-term goals?

    Investment plans are suited for long-term goals (5+ years) like retirement or education, as they have the potential for higher returns to grow your money.
  • Do savings plans offer any returns?

    Savings plans typically offer guaranteed, low returns, like interest in a savings account.
  • Is there a risk of losing money with investments?

    Yes, some investments carry risk, meaning the value could go down. But historically, the market has trended upwards over the long term.
  • How can I minimize risk when investing?

    Diversification is key, where you spread your money across different asset classes to reduce risk from any single investment dropping.
  • Can I access my money easily if I invest?

    Liquidity varies depending on the type of investment option. Some investments, like stocks or mutual funds, are relatively easy to sell, while others might have lock-in periods.
  • Are there any tax benefits for saving or investing?

    Tax implications of savings and investment plans depend on your location and the specific plan.
  • When should I start saving or investing?

    The sooner, the better! Even small amounts of your savings can grow significantly over time, thanks to compounding.

Past 5 Year annualised returns as on 01-07-2024

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The lumpsum benefit is calculated if policyholder invested ₹10000 monthly for 10 years in the fund with a policy term of 20 years. This Point To Point past performance data of last 10 years has been used to illustrate a scenario for the customers benefit. It is assumed that the past 10 years returns would have also been delivered in last 20 years. This is not guaranteed and not in anyway indicative of what the customer may actually get 20 years from now. The investment is subject to market risk and the risk is borne by the policyholder.

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