Saving surplus cash in a current account is common practice for many business owners as it provides easy access to funds for day-to-day operations and short-term expenses. However, it’s essential to recognise that an opportunity cost can be associated with keeping excess cash in a low-yield or non-interest-bearing account. By holding idle business cash in the current account, businesses may miss out on potential investment opportunities that could generate higher returns. The concept of opportunity cost relates to the potential gains that could have been achieved by investing the money in other profitable ventures.
Now the question is, what are these investment avenues? In this blog, we will explore widely known traditional investments and will explore how mutual funds beat them and stand as a better option.
Let’s start with the basics first.
What are Some Traditional Investment Avenues to Park Idle Cash?
- Stocks: Investing in individual company stocks offers ownership in a specific company with the potential for capital appreciation and dividends.
- Bonds: Purchasing fixed-income securities provides periodic interest payments by lending money to governments, municipalities, or corporations.
- Real Estate: Buying properties for rental income or appreciation potential.
- Commodities: Investing in physical goods like gold, oil, etc., for potential price appreciation.
- Savings Accounts: Depositing money in a bank account that accrues interest for low-risk and liquid investments.
- Mutual Funds: Pooling money from multiple investors to invest in a diversified portfolio of securities.
- Fixed Deposits: Placing funds with a financial institution for a fixed period at a fixed interest rate, provides secure and predictable returns.
How do Mutual Funds Beat All and Stand As The Best?
Let’s compare mutual funds with each other’s investment avenues out there.
Mutual Funds Vs. Stocks:
While returns from stocks can be attractive, the associated risk can deter businesses from investing their cash in individual stocks. However, mutual funds offer a solution to invest business money by providing diversification through a portfolio of stocks. By pooling investments from multiple investors, mutual funds spread the risk across various stocks, reducing the impact of any individual stock’s performance. This diversification makes mutual funds a more appealing option for businesses looking to invest their cash while minimising risk.
Must Read: The Choice for Business Owners: Mutual Funds Vs. Stocks
Mutual Funds Vs. Real Estate:
While investing business money in real estate can have its advantages, such as potential appreciation and rental income, there are reasons why businesses may choose not to put all their money in real estate. Real estate investments can require significant capital, tying up funds that could be utilised for other business purposes. Additionally, real estate investments can have lower liquidity compared to other investment options, as it may take time to sell properties and convert them into cash. By opting for real estate mutual funds, businesses can gain exposure to the real estate market while enjoying the benefits of liquidity, diversification, and professional management provided by the mutual fund structure.
Mutual Funds Vs. Commodities:
Commodities are considered risky and volatile investments due to price fluctuations and market unpredictability. Investing directly in commodities also involves logistical complexities and costs. In contrast, mutual funds offer a safer and more convenient option to invest in commodities. Mutual funds can diversify investments across multiple commodities, reducing risk exposure. They provide liquidity and eliminate the need for physical storage or handling of commodities. By investing in commodity-based mutual funds or ETFs, businesses can gain exposure to commodities while benefiting from professional management and greater convenience. Mutual funds offer a secure and accessible way to participate in commodity markets while minimising the inherent risks associated with direct commodity investments.
Mutual Funds Vs. Current Accounts:
To have easy access to their money, businesses often keep their funds in current accounts. However, this practice results in idle business cash as current accounts offer no returns. A better alternative for businesses is to invest business money in mutual fund schemes such as Liquid Funds. Liquid Funds are a type of mutual fund that invests in money market and debt securities, offering both liquidity and better returns. By choosing to invest in liquid funds, businesses can benefit from high liquidity, competitive returns, safety, diversification, and regulatory transparency. These funds provide the flexibility to redeem investments quickly when needed, ensuring easy access to funds for operational and financial requirements.
Furthermore, liquid funds aim to generate competitive returns by investing in a diversified portfolio of low-risk securities, ensuring capital preservation and stability. They operate under strict regulations, providing transparency and protecting investor interests. By diversifying investments across various issuers and sectors, liquid funds mitigate concentration risk and enhance risk management. Overall, investing business money in liquid funds allows businesses to optimise returns, maintain liquidity, and minimise the opportunity cost of holding cash in low-yield current accounts.
Mutual Funds Vs. Fixed Deposits:
Fixed deposits (FDs) are considered conservative but may offer lower returns when accounting for inflation and taxes. On the other hand, debt mutual funds provide a better alternative with potentially higher returns and lower risk. Debt mutual funds invest in a diversified portfolio of fixed-income securities, offering professional management, flexibility in durations and risk profiles, and liquidity. This makes debt mutual funds a favourable choice for businesses, as they offer the potential for higher returns while providing risk management and liquidity benefits.
Bottom line:
Each investment type, including stocks, bonds, real estate, commodities, and savings accounts, has its own unique benefits. However, when it comes to corporate investors, mutual funds, such as debt mutual funds and liquid funds emerge as the superior choice to invest business money. Mutual funds offer a comprehensive package of advantages that align well with the needs and goals of corporate entities.
Mutual funds investments provide corporates with the opportunity to invest idle business cash in a variety of asset classes, including stocks, bonds, real estate, commodities, and more, through expertly managed portfolios. These funds are designed to optimise returns while mitigating risks through diversification and active monitoring of market conditions.
Moreover, mutual funds offer corporates the flexibility to choose from various types of funds, depending on their investment objectives, risk tolerance, and time horizon. Whether it’s short-term liquidity needs or long-term growth aspirations, there are mutual fund investment options available to align with specific corporate requirements.
By selecting mutual funds over traditional investments, corporates can benefit from professional expertise, reduced risk exposure, and the potential for superior returns. Mutual funds provide corporates with a disciplined approach to investing idle cash, ensuring that their funds are actively working towards their financial goals.
In conclusion, mutual funds offer corporates a compelling choice to invest their business money and generate significant returns. If you’re new to investing your idle cash, we have the perfect platform for you. Shootih—India’s First Business Wealth Management Platform—is designed specifically for corporates, helping them make the most of their idle cash. With advanced features like idle cash alerts, investment calculators, and data-driven recommendations, you can navigate the investment landscape with ease and confidence. The services can be better explained in a short demo call! To schedule a free demo call with our expert, click here.
Disclaimer: Mutual fund investments are subject to market risks, please read all scheme-related documents carefully.
The content of this blog is not intended to serve any professional advice or guidance and Shootih takes no responsibility or liability in whatsoever manner for any investment decisions made by the readers of this blog or other blogs. Readers should seek independent professional advice before making any investment decision based on the information provided on this website.
