You are right; savings is where the entire investment story begins. To put in simple terms, savings represent the excess of your income over your expenditure; or your inflows over your outflows on a regular basis. Let us take an illustration. If your monthly income is Rs.85,000/- and your monthly expenses are Rs.55,000/- then Rs.30,000/- is your monthly savings. This is the static approach to savings but tells you how much is left after your monthly costs and bills which you can start creating a corpus for the future. Now that you know how money is saved, the next step is to decide what to do with the savings. The choice is yours; you can keep it under your pillow, put it in a bank or in a liquid fund or put the money in equities or equity funds. This is the key to understanding the relationship between savings and investment. If you really want to go one step further and invest then look at balanced funds and equity funds. The other side of savings is dis-savings or negative savings; basically you are living on borrowed time. If you are earning Rs.85,000/- per month and your monthly expenses are Rs.95,000/- per month, then you are dis-saving. To meet the shortfall of Rs.10,000/- per month, you will have to borrow money and pay interest or you will have to keep disposing some of your assets to fill the gap.

Remember a basic lesson of investing here. To convert surplus into savings and to convert your savings into investments you require the help of financial instruments. They are called financial instruments because that is what they are. They are just instruments or tools to help you meet your financial goals and it is up to you to make creative use of them. The choice of your financial instrument in this case will be determined by what is your goal; whether it is long term, medium term or short term.