Savings and InvestmentsSavings are essential not only for individuals, family or businessmen but it is also very much required for a nation. Growth is practically impossible without savings. These savings need to be invested in the right way to maximize the returns and minimize the risks. Sometimes people spend some money on buying shares, bonds,properties etc. which give them some monetary return. Sometimes people also keep their savings or a part of it as a recurring or fixed deposit in the banks or post offices and earn interest on it. Similarly some people deposit their money in Mutual Funds, Public Provident Fund Account etc., some buy National Savings Certificates from the post office and some take Life Insurance Policies etc. All these give them some additional income. These types of expenditures are called investment. Thus, the term 'investment' refers to depositing or spending money on some items that generate additional income either immediately or in the future. Majority of investments in our country are in equity asset class.
Equity Asset Class:An equity investment refers to the investment made in shares/stocks of a company, generally traded at the stock exchange. It represents a part ownership of the company. Investments in equities are generally done with the anticipation of income from dividends and capital gains, as the value of stock rises. The appreciation in the share price is driven by the growth in earnings or profits of the company, which potentially, are unlimited in nature. Equity investments are generally for long term in nature, where adequate time is given to the investment to appreciate in value. There is no guarantee of returns and there can even be negative returns with companies not performing well. Thus, it is an asset class that offers a high risk - high return trade-off. Historically, equities have delivered much superior returns over any other asset class. If one is investing for a long horizon, in a growing market like India, equity definitely offers great opportunity for wealth creation to investors.
"Source: RBI, BSE, Internal; For Bank FD median rate taken for 1-3 year period; For Co. Deposit Return assumed 1% higher than Bank FD Data from March 1981 - March 2012"