Returns are at the center of most investment discussions. Investors compare mutual funds, stocks, gold, fixed deposits, and bonds”>bonds to understand where they can earn more. But there is one factor that fuels investments even before returns come into play: the savings rate.
The savings rate”>savings rate is the percentage of income that is saved or invested rather than spent. Since returns are earned only on the money that actually gets invested, a higher savings rate can often have a bigger impact on long-term portfolio growth than a small difference in returns.
For instance, if a person earns ₹12 lakh a year and invests ₹3 lakh, the savings rate is 25%. If the same person invests ₹4.2 lakh, the savings rate rises to 35%. The difference may look like a monthly budgeting choice, but over time, it can create a meaningful gap in portfolio value.
Before Returns, Comes the Investment Amount
Market returns are not fully in an investor’s control. Equity markets can remain volatile, interest rates can move with inflation and policy cycles, and even well-selected investments may go through phases of lower returns.
Savings rate, on the other hand, is more controllable. It depends on how much of the income is consistently set aside and invested. This makes it one of the most important wealth-building levers, especially in the early years of earning.
A higher return”>higher return on a smaller investment base may not always beat a moderate return on a larger and steadily growing base. That is the core idea investors often overlook.
The ₹29 Lakh Difference”> ₹29 Lakh Difference”> ₹29 Lakh Difference”> ₹29 Lakh Difference: What the Numbers Show
The accompanying infographic explains this through a simple comparison.
Consider two investors who start with the same annual income of ₹8.4 lakh, or ₹70,000 a month. Assume income grows by 10% every year.
Investor A saves 35% of income and earns 10% annual returns. Investor B saves 20% of income but earns a higher 12% annual return.
At the end of the first year, Investor A has about ₹3.23 lakh, while Investor B has about ₹1.88 lakh. By the fifth year, Investor A’s corpus grows to ₹23.69 lakh, compared with ₹14.17 lakh for Investor B. By year 10, the gap becomes much wider.
Investor A ends the 10th year with about ₹77.20 lakh. Investor B reaches about ₹48.24 lakh. The difference is nearly ₹29 lakh, even though Investor B earned a higher return.
This is the real impact of savings rate. Investor A’s portfolio grows faster not because the return is higher, but because more money is being invested every year. A larger investment base gives compounding more room to work.
Why Higher Returns Alone May Not Be Enough
The example also shows why investors should not look at returns in isolation. A 12% return sounds better than 10%, but the final outcome depends on the amount invested.
Investor B earns a higher return, but saves only 20% of income. Investor A earns a lower return, but saves 35%. Over 10 years, the higher savings rate creates a stronger outcome.
This does not mean returns are unimportant. It means returns need capital”>returns need capital. Without a meaningful investment amount, even a strong return percentage may not translate into a large corpus.
For young earners, this is an important lesson. The first step in portfolio building is not only choosing the right asset. It ensures that enough money reaches the portfolio consistently.
How Young Earners Can Raise Their Savings Rate
The first few years of earning are often the best time to build a strong savings habit. Income may still be modest, but expenses are usually easier to control. Many young professionals may not yet have large family responsibilities, home loans, or school fees.
There are practical ways to improve the savings rate”>improve the savings rate:
- Build a side hustle: Freelancing, tutoring, consulting, design, coding, or content work can create an additional income stream. If this extra income is invested rather than spent, it can lift the savings rate quickly.
- Work on skill enhancement: In the early years, future earning potential is often the biggest financial asset. Better technical skills, certifications, communication, or domain expertise can improve job growth and income.
- Switch jobs strategically: A higher salary can improve savings meaningfully, but only if expenses remain under control. Career moves should ideally follow stronger skills, better work experience, and clearer growth opportunities.
- Use budgeting to track expenses: Budgeting is not about cutting every expense. It is about knowing where money is going. Rent, food, travel, subscriptions, shopping and weekend spending should be tracked. A simple approach is to invest first and spend from the balance.
- Avoid lifestyle inflation: Salary growth should not automatically lead to higher spending. Gadgets, travel, food delivery, subscriptions, and EMIs can quickly absorb every hike. Directing part of every income increase toward investments can steadily improve the savings rate.
Where a Higher Savings Rate Can Be Invested
A higher savings rate is only one side of the equation. The money saved must also be allocated sensibly across assets based on goals, time horizon and risk appetite.
For long-term growth, equities may play an important role. For portfolio balance, fixed-income products also matter. This is where investment-grade corporate bonds”>investment-grade corporate bonds can fit naturally into an investor’s portfolio.
Investment-grade corporate bonds can offer a defined return structure over a fixed maturity period. They can help diversify a portfolio that is otherwise heavily dependent on equities or traditional deposits. For investors allocating part of their savings to fixed income, they can sit alongside deposits, debt funds or government-backed instruments, depending on the goal and tenure.
Retail access to such instruments has improved through SEBI-registered online bond platform providers such as Jiraaf, which have helped make listed investment-grade corporate bonds more accessible and easier to evaluate for individual investors.
The Takeaway: Save More, Then Invest Better
The lesson is simple. Investors should not think only in terms of returns. They should also think in terms of how much they are investing.
The infographic makes this point clearly. A stronger savings habit can create a larger investment base, and that larger base can deliver a better outcome even when returns are relatively moderate.
For most investors, the more useful question may not be, “Where can I earn the highest return?” It may be, “Am I saving and investing enough?”
Over time, that answer can make a bigger difference to portfolio growth than many investors expect.
Note to the Reader: This article is part of Hindustan Times’ promotional consumer connect initiative and is independently created by the brand. Hindustan Times assumes no editorial responsibility for the content.
