10 Best Investment Instruments For Small Business
Creating wealth for your company is not restricted to selling your products and services. Making investments in the right instruments provides you with reliable financial resources when your cash flow is down. It also helps improve the financial health of your company, which can help you get investments and other financial aid easily when you plan to expand your business.
Read all about the advantages of investment and the right instruments to choose for your business.
First, there are two types of investment brackets available:
- Financial assets: Financial assets are fixed income instruments like PPF and fixed deposits and market-related products like mutual funds and stocks.
- Non-financial assets: These assets include real estate, gold, and other similar products.
If the goal of your investment is to build capital for your business or keep yourself safe during inflation and other challenges, here is everything you need to know about how to invest money in different instruments.
10 Best Investment Instruments For Small Businesses
Here is a list of the best investment instruments for small businesses that help you reach your financial goals and also give you some security:
1. Mutual Funds:
These are instrument vehicles that are managed for you by a fund manager. Their role is to deposit money as an investment in different bonds and shares. They choose the companies that are most likely to create returns. The benefits of investment in mutual funds include a low initial investment option. These instruments are rather volatile and are suited best for medium-risk investment. You can choose between equity funds, debt mutual funds, and hybrid funds based on the returns you are expecting and the amount you are willing to invest.
2. Recurring Deposits:
These are the best investment instruments if your goal is to earn good returns with regular deposits. You have the option of choosing the investment tenure, as well. All you have to do is open an RD account with your bank and choose the fixed amount you will deposit each month. Any interest that you earn on the RD is payable after the deposit matures.
3. Bank Fixed Deposits:
Here is one of the best investment tips for startups or individuals who want a low-risk option. Make sure you have a bank FD along with other riskier investment instruments. Not only is it convenient, but it is also very flexible. Even individuals who prefer high-risk investments have some bank FDs in order to maintain a diverse and stable portfolio.
With an RD, you have the assurance of guaranteed returns. You do not lose any principle either. You get a rate of interest of up to 8%, which is relatively high. You can also choose an investment period starting at 7 days and going up to 10 years.
There are several benefits of investing in stocks if you are choosing to make a long-term investment. You purchase equity or ownership in a company or an entity. These equity investments are then traded in the stock market electronically. Buying and selling stocks at the right time gives you the advantage of both short-term and long-term investments.
However, if you wish to enjoy the complete benefits of investing in stocks, it is necessary to stay clear of them before any impending inflation. You will also have to monitor the stock market regularly to find the right selling time. This can also be handled by experts for you with a small fee attached to it.
5. Real Estate:
This is one of the most popular investment instruments as it gives you very good security against any loans or capitals you wish to obtain in the future. This is one of the most fast-advancing sectors in the country today. There are different segments to choose from, including commercial, hospitality, retail, manufacturing, and housing. The other benefits of investing in real estate include the very low risk associated with it. At the same time, the chances of property prices increasing are extremely high, making it a great investment option for you.
One of the most valuable commodities in most parts of the world, gold is one of the most important instruments when you are still learning how to invest money. There are some concerns associated with this instrument, however. This includes the high cost and the risk associated with it. Today, you can only invest in gold coins or paper gold if you are investing in gold as a means of creating assets for security when you apply for a loan for business development.
7. Public Provident Fund:
Popularly known as PPF, this is one the best investment instruments available today. It is extremely reliable and offers an annual rate of interest. The initial investment amount can be as low as Rs. 500. One of the most important advantages of investment in PPF is that you can get tax deductions under section 80C of the Income Tax Act. You can also get a small corpus at different stages of the investment period, which extends up to 14 years. PPF offers compound interest at the rate of 7.1%, giving you great returns as well.
8. RBI Bonds:
The Reserve Bank of India offers savings bonds to customers at an interest rate of 7.75%. You get a certificate that can be used as proof of your investment. This is also one of the safest options for investment as it is offered by the apex bank of the country. You can get a demat bond and then issue it to the BLA or the Bond Ledger Account.
9. Direct Equity:
For those looking at long-term growth, direct equity is the best option. You get ownership of the company and share the profits and losses of the entity. This option does offer long-term growth but is also volatile at the same time. You need to make sure you get the timing right when choosing the company whose stocks you wish to invest in. Furthermore, you must know how to invest money and exit at the right time. If you are unsure of the process, it is best to get a financial expert to help you.
10. Initial Public Offer (IPO):
When a private company opens its stock for sale to the general public, it offers shares to them with the assistance of investment banks. This is called an IPO. The process is regulated by the Securities and Exchange Board of India (SEBI). This means that you are free from scams and can get returns as high as 25% over the chosen tenure.
With the best investment tips, you are now ready to begin saving for the future of your business. However, if you are still learning the ropes of finances and investment, hire a financial advisor who can help you build more wealth for your business.
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Q. How can I fund my business with an FD if I cannot use it for the tenure?
Ans. You can use fixed deposits as security against a business loan, allowing you to get funds for your business instantly.
Q. What is the difference between stocks and mutual funds?
Ans. With stocks, you purchase equity in one company only. On the other hand, with mutual funds, you buy small amounts of equity in several companies with a single investment.
Q. How will real estate come in handy when I want to raise immediate funds for my business?
Ans. Real estate can fetch you funds of about 75% of the total property value as business loans. The real estate that you possess is taken as a security against the loan offered.
Q. What is paper gold?
Ans. With paper gold, you have a piece of paper used as a replacement for the actual gold. So, it is basically an assurance that you will receive physical gold. But, you can save on the trouble of storing or safeguarding actual gold. Basically, you purchase gold with your money but receive shares of equal value as the investment instruments.
Q. Is it mandatory for companies to have investments?
Ans. No, you do not have to invest in different investments for a company. However, it is a good idea to choose your investment instrument correctly so that when you scale up your business or are suffering from low cash flow, you have the option of selling or trading these investment instruments to get the funding you need.