As an entrepreneur, you need a backup plan to anticipate various risks, one of which is preparing an emergency fund for your businesses. Through Fixed Income Mutual Funds (RDPT) and other types of Mutual Funds, you can raise your business emergency fund safely and with low risk.
Mutual Funds are one of the investments with various advantages, including lower risk, high liquidity, and are not tax objects. These advantages make it suitable as an investment to develop a business emergency fund.
The Importance of an Emergency Fund in a Business
Emergency funds are not only needed to support emergencies in personal finances. But it is also needed when the business is in a critical condition and the finances are in the red. Not only that, an emergency fund is also needed when a business is experiencing problems that require a supply of funds.
In essence, an emergency fund is very important for both personal and business finances, so it would be better if you start preparing it from now on. In order to be even more certain about the importance of an emergency fund for business, you should see the reasons in the following explanation.
- To Anticipate Bankruptcy
All businesses can go bankrupt if they are not managed properly. The most common cause of business bankruptcy is mistakes in managing business finances. This generally occurs in start-up businesses that are still growing and don't have stable finances yet.
So that your business doesn't experience this, it's best to prepare an emergency fund as early as possible. Thus, when financial and business conditions are experiencing a downturn, your business can survive because it has a reserve of funds.
- Supporting Business Finance in Critical Times
Market conditions are constantly changing so there are no definite provisions that can guarantee your business will continue to run well. There will definitely be a time when business finance is critical due to declining market conditions or ever tightening competition.
When experiencing this, you need a supply of funds to support business activities. By having an adequate emergency fund, you can sustain your business amidst the challenges you are facing.
- Overcome Continuously Negative Cashflow
Have your business finances ever experienced a negative cashflow? If so, most likely it happened in the early days of the business. A cashflow that continues to be in the red generally occurs because the flow of cash is not balanced, in which the outflow of cash is higher than the inflow of cash.
This condition occurred because the sales figures did not increase but the need for operational costs continued. How to deal with this? Of course you need to improve the performance of the marketing sector to increase sales figures.
To improve the performance of the marketing sector, you need funds to carry out various promotional strategies. With an emergency fund, you can get through these difficult times more easily without having to look for a capital loan.
- Useful for growing a business
Emergency funds are not only useful for anticipating financial problems in difficult times. You can also use an emergency fund to grow your business bigger than before.
Growing a business is one of the right steps to increase revenue. The larger the business scale, the greater the income earned. You can use an emergency fund to scale your business up when your financial condition is completely stable.
Is it Right to Invest for Business Emergency Fund in Mutual Funds?
Emergency funds can help businesses survive in various conditions, which is why you must prepare an adequate amount of emergency funds. So that the emergency fund is not passive, you should not keep it in a saving account.
Investing it in the right instrument would be better to make a profit. From these advantages, the amount of the emergency fund will increase so that its value will not decrease even if it is stored for a long time. Mutual Funds are one of the right instrument choices for investing your emergency funds.
Here are the reasons why Mutual Funds are the right choice for raising a business emergency fund.
- Has Attractive Profit Potential
Mutual Funds are investment instruments that offer a relatively high return potential, making them an appropriate investment for developing emergency funds. The resulting return does vary depending on the performance of the selected Mutual Funds product. That's why you need to choose the right Mutual Funds products if you want to gain the maximum profit.
- Available in Various Types
The next advantage of Mutual Funds is that they consist of several types, each of which offers different benefits and levels of risk. The following is the order of the types of Mutual Funds from the lowest to the highest risk:
- Money Market Mutual Funds (RDPU)
This type of Mutual Funds, which is the lowest in risk, is in great demand by conservative investors. Investment Managers who manage Money Market Mutual Funds will manage their investors' funds through money market instruments or securities.
- Fixed Income Mutual Funds (RDPT)
RDPT is also a type of Mutual Funds that offers a low level of risk, so it is still safe for conservative investors. The Investment Managers who manage the RDPT will grow their investor funds into instruments that have fixed returns, such as Bonds or debentures.
- Balanced Mutual Funds (RDC)
The next type of Mutual Funds are more in demand by moderate investors because they offer quite high profit potential with lower risk than Equity Mutual Funds. The Investment Managers who manage Mixed Mutual Funds will grow their investor funds into various investment instruments, namely stocks and Bonds.
- Equity Mutual Funds (RDS)
RDS is a type of Mutual Funds with the highest level of risk among other types of Mutual Funds. However, it offers relatively higher profit potential. Investment Managers who manage Equity Mutual Funds will grow their investor funds into pure stock instruments.
- High Liquidity Level
The next advantage of Mutual Funds is that they are flexible due to easy liquidation at any time. That's why Mutual Funds are the right choice for saving up and raising emergency funds for business and personal finances. So, when you need funds at any time, you can immediately withdraw them without having to wait long and go through a complicated process.
- Facilitate Diversification
Investment diversification is very important to minimize the risk of loss. Mutual Funds are instruments that can make it easier for you to spread funds because they are available in various types. Each type offers a different level of risk, so you can allocate business emergency funds to several types of Mutual Funds to reduce risk.
- Tax Free
Most investment activity is taxable, but you don't have to pay for it in Mutual Funds. Why are Mutual Funds tax-free? Because it is not included as a tax object so that the investment benefits you gain will be maximized.
- Regulated and Supervised by OJK
All investment activities carried out in Mutual Funds have been regulated and supervised by the Financial Services Authority (OJK). Thus, you will avoid fraud and misuse of funds by investment managers.
- Does Not Require In-depth Analysis
Before investing, most investors will conduct an in-depth analysis of the current market situation. However, this is not necessary when choosing to invest in Mutual Funds because the Investment Manager will do this carefully to optimize Mutual Funds performance.
Tips for Developing an Emergency Fund with Mutual Funds Diversification
Investment diversification is carried out to minimize risk by spreading investment funds across several instruments. This method is quite effective in anticipating adverse events in investing.
To do this, it takes the right steps so that the results are maximized. Here are some steps that need to be taken before diversifying investments in Mutual Funds.
- Determine the investment period
First, determine the investment period according to your business needs. The options can be short term, medium term, or long term. If the business's financial condition is stable and has excess cash deposits, then you can choose long-term investments.
However, if your financial condition is fluctuating, you should choose short to medium term investments so that they can be disbursed at any time when needed. Long-term investments in Mutual Funds can also be disbursed at any time, but the profits tend to be less than optimal if disbursed early.
- Understand the Risk Level of Each Type of Mutual Funds
Every type of investment has risks, but the levels are different. Overall, Mutual Funds are considered low-risk investments. However, each type of Mutual Funds has different levels of risk.
By understanding the level of risk of each type of Mutual Funds, you can determine which type of Mutual Funds is right for diversification. Thus, the potential benefits obtained can be maximized.
- Choose the Right Diversification Percentage
Everyone has a different risk profile, from conservative, moderate, to aggressive investors. Each type of investor has an ideal level of diversifying their investment funds. The following is the appropriate diversification percentage for each type of investor:
- Conservative Investor Type
Conservative investors with short-term investment goals (less than 1 year) can diversify by placing 80% of business emergency funds into Money Market Mutual Funds, the rest can be invested in Fixed Income Mutual Funds.
- Moderate Investor Type
Moderate investors with medium-term investment goals (1-3 years) can diversify by placing 70-80% of their business emergency funds into RDPT and the rest into RDPU.
- Aggressive Investor Type
Meanwhile, aggressive investors with long-term investment goals can diversify by placing 70-80% of their emergency business funds in Equity Mutual Funds and the rest in Money Market Mutual Funds.
- Choose an Investment Manager Carefully
Even though Mutual Funds are low-risk investments, that doesn't mean you can choose an Investment Manager without considering the portfolio. Make sure to understand its performance first before investing your business emergency fund into a Mutual Funds product.
Easy and Practical Fixed Income Mutual Funds Investment with DBS Treasures
DBS Treasures will support you in raising a business emergency fund and realizing your business financial aspirations. Following are the benefits of being a DBS Treasures priority banking customer:
- Your Funds will be Managed by Professional Investment Managers
You don't need to hesitate because all Mutual Funds products offered by DBS Treasures are managed by professional Investment Manager partners with experience in improving the performance of their investment products.
- Gain the Latest Information on Investment
A team of financial experts will proactively provide information and insights about the investment world. Starting from market analysis results to the latest investment opportunities that suit your aspirations, to support you in making the right investment moves confidently.
- Investment Diversification
DBS Treasures not only provides various Mutual Funds products but also other investment products, for example Bonds. Thus, you can more easily diversify your investment.
- Provides Flexibility in Investing
Through the digibank by DBS Application, you can make investment transactions flexibly, without the need to go to the bank or to the asset management office. Clients can register for a Single Investor Identity (SID), do buy-sell transactions, and switch Mutual Funds in one application.
Enjoy the convenience of various investment moves. Start raising your business emergency fund in Fixed Income Mutual Funds and other types of Mutual Funds easily through DBS Treasures. Find complete information now here.
