If you are more than 10 years old somebody has told you that “Saving is the key to your future prosperity” or “a Rupee saved is a Rupee earned” – we love the savers. In fact that is what makes ALL our terribly managed banks also profitable. Very profitable despite the NPA that they create!

Lets look at it this way. If you save money, that much money is spent less – which means somebody else did not ‘earn’ that money. So the government did not earn more taxes, more service tax, …and the money was sleeping in your account. This actually is making the bank more profitable – and technically the bank can ‘lend’ more. Our banks (psu especially) have no great talent for lending, so they invest in Government securities – almost all our banks have more investments than what is statutorily needed to be invested.

So saving does not help much. The interest that you earn is taxed and thus you get a very poor post tax return – always negative Real rate, almost guaranteed to be that way.

You can allocate that savings to Investment – i.e. buy shares. This too does nothing for creating wealth for you. It creates wealth for the person who has already ‘invested’ in plant machinery, labor, rent to create profits. The person who had invested in those ‘REAL ASSETS’ was the original investor. You are making him rich, and hopefully yourself too.

The Real Investments – of buying land, machinery, people – and creating new products is the INVESTMENT which creates jobs. This creates real wealth. However the ‘passive’ investing we do makes investing and capital allocation MORE efficient. So the importance of this type of investing cannot be scoffed at.

So everything is important – savings, investing – as in capital allocation and Investing in Real assets. However a REAL return will happen ONLY in smart Investing, not in Savings.