Financial risk is intrinsic to entrepreneurship, especially when the business is in its fledgling or challenger stages. Problems surrounding insufficient working capital, contractual issues, and delayed client payments could potentially paralyze business operations. Along with achieving business growth, entrepreneurs must focus on achieving financial security.
But considering that you may not have considerable external capital to infuse, systematically investing a small sum of money can help you build a concrete corpus over time – think of a Systematic Investment Plan or SIP for small business. Read more to find out how.
Why choose SIP as an investment instrument for your business
You can leverage the power of the compounding effect
When you invest in mutual funds, you get to enjoy the power of compounding, wherein interest is earned not just on the original principal but also on the accrued interest earned from the previous compounding periods. Naturally, if you stay invested long-term, you can grow a decent corpus without even investing a huge lump sum.
This corpus can act as a capital reserve for meeting business needs in the long run, such as purchasing advanced machinery and technology, expanding into new markets, and more.
Additional Read – Why to Invest in Mutual Funds?
You benefit from rupee cost averaging
In the case of small business SIP, you need to invest a fixed sum of money every month irrespective of whether the current market is bullish or bearish. This way, the value of each unit is averaged out. You can make this work in your favour by purchasing more units of a fund when the market is experiencing a downturn and selling them when the market is booming.
By following the principle of rupee cost averaging, SIP lets you earn high returns irrespective of market conditions. It will help you build a reservoir of funds which will come in handy to address increasing operational costs.
You enjoy flexibility
Projecting cash flows can be challenging for any business, but more so for start-ups. SIP for small business will help you deal with highs and lows by letting you adjust the amount you invest each month. For instance – If your business is performing well, you can top-up the SIP amount. On the other hand, the SIP amount can be reduced by a certain percentage during months your business goes through a lean patch.
Additional Read – Smart Retirement Planning with Long Term Investments in Mutual Funds
Finally, the key to building a corpus is disciplinary investing, something which SIP helps inculcate. You need not even keep a tab on your investments every month. Smart applications such as Tata Capital’s Moneyfy app make the process easier by offering the One-Time Mandate (OTM) Autopay option. All you need to do is download the app, enter PAN and email details, choose your bank, mandate amount, and the validity period, and authenticate Aadhaar details. Not only that, but you will also receive personalized fund recommendations to achieve investment goals. So, fortify your business in a challenging economy using SIP today!