In the past few years, systematic investment plan (SIP) has gained traction among Indian investors. Data from the Association of Mutual Funds (AMFI) [1] reveals 2.59 crore SIP accounts through which investors invest regularly in mutual funds. While retail investors have embraced SIPs with glee, if you are running a small business, given below are five reasons for you to consider this mode of mutual fund investment:

  1. Ease of investment
  2. The underlying beauty of SIP is the ease of investment. You can start a SIP in your chosen fund from as little as Rs. 500 per month. All you need to do is to be KYC-compliant, visit the website of the fund house and start investing. Today, several apps and platforms help you to kick-start the SIP process.

    Also, you can also invest through an intermediary in the fund of your choice. Note that in case you invest via an intermediary, a certain portion of the returns needs to paid as commission.

  3. Build capital
  4. As a businessperson, your goal should not only be to address current needs but also build capital for future needs such as expansion, buying machinery, implementing technology, etc. While tailor-made business loans are available, it’s prudent to have capital reserve to reduce dependence on such loans which attract a hefty interest rate.

    Even a modest SIP of Rs. 10,000 per month in an equity fund offering annualised returns of 10% for a period of 5 years will help you generate a corpus upwards of Rs. 82 lakhs. This money can come handy in the future for diverse needs.

  5. Address increasing operational costs
  6. Running a business entails several operational costs which increase over a period of time. By starting a SIP for your business, you can slowly build a reservoir of funds to address these expenses. For instance, if you choose to start a SIP in an equity fund, instead of directly investing in stocks, there are greater chances of achieving success both in terms of wealth accumulation and gaining from the high-return potential of equities.

    Once you do so, the high costs will not force you to stretch your finances or pose problems related to management of working capital. You have a financial backing which ensures smooth functioning of business operations.

  7. Investment flexibility
  8. Projecting cash flows in business is difficult. While some months may be extremely profitable, others might be lean. However, SIPs give you the flexibility to adjust the amount as per your cash flows. In case your business has performed well over a period, you can top-up the SIP amount by a certain percentage.

    On the other hand, if your business is going through a lean patch, you can decrease the amount accordingly and increase it, when the tides turn in your favour.

  9. Diversification
  10. SIPs diversify your investments across asset classes, which mitigates risk to a great extent. More importantly, SIPs help you remain invested across market cycles, essential to make gains in the long-term.
They prevent you timing the market and help you spend more time in the market, essential for maximising returns from mutual fund investments.
Now that you know the benefits of SIPs for your small business, it’s time to start one right away!

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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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