General reaction of any businessmen or entrepreneur towards savings/investing is that his/her business generates huge returns that no investment can ever match. They believe that it is highly rewarding to reinvest all their earnings in their existing business.
It is certainly correct that good businesses generate attractive wealth for their promoters and investing in one own’s business should be the first priority of any businessman. However, I share my views on why a businessman or entrepreneur should invest some part of his earnings in equity mutual funds on a regular basis.
Fulfill personal financial goals
In their passion to grow their business, businessmen often tend to invest all their earnings in existing business. They often forget that there are personal/family financial goals like child education and marriage, purchase of house, vacation etc. which have to be fulfilled and for which investments are needed outside the business. It may not be possible or prudent for him to take out money from the existing business to fulfil these financial goals as and when they arise. Withdrawal of lacs of rupees to fund higher education or marriage of a child may cripple his entire business.
Diversification of business
A businessmen engaged in a particular business may be doing very well due to his individual competency for that particular business and due to positive environment around the product or service that his business is offering. He may be having knowledge and experience to run and grow his business on a continuous basis.
For a businessmen or an entrepreneur who is willing to diversify, it is not always possible to learn about new businesses, infuse capital, create a team and wait for profits to come. But by investing in equity mutual funds, a person can put some part of his earnings in other businesses that are reputed, well managed and growing. An equity fund invests the investors’ money in different, good quality businesses with proven track record and competent management. Therefore, by investing in an equity mutual fund, a businessman can diversify his money in other businesses, which he may not otherwise be able to start and grow on his own.
Tap market opportunities
Many a times we hear conversations like ‘Auto companies are doing very well; Software companies are making huge profits from global markets’. What it means is that at times we know certain businesses are doing well and making good profits for their owners. Despite knowing this, it is not possible for every existing businessman to start a new business which is looking attractive. Another example, despite knowing that government shall now be spending lot of money on infrastructure projects in the country, not every businessman can start an infra/construction/engineering company to benefit from this opportunity.
Create capital for future use
In future, a businessmen may have to upgrade technology, set up new offices/factories, expand into new lines of business. By investing a part of his profits in an equity mutual fund, he can build a fund outside his business that can be used for any of the business requirements in future. Over a period of time, the equity fund shall not only help to keep some part of his money away from his business but shall also help in growing it at attractive returns. Funds created from internal earnings shall make the balance sheet stronger and also minimize the need to borrow money from the market/banks, thus saving from interest burden.