WHY RISK DIVERSIFICATION MATTERS
Crunching numbers is a way of life for entrepreneurs. If you are one, you know it means a lot to your finances. You are watching your income and expenditure like a hawk. You keep giving something to your business that grows in front of you. In fact, many of you, give it all. Risk diversification, or the process of spreading the risk over many asset classes, takes a backseat for your investment strategy. However, this may not be called prudence. A well- diversified investment portfolio is as important to an entrepreneur as it is to any other individual, if not more.
What can you achieve with diversification
As someone who runs a business, you know the importance of ‘cash-in-bank’ better than anyone else. Having money at your disposal when you need it the most helps mitigate any working capital stress. Yes, you are all invested in your business. However, you need to push yourself to set aside a portion of your income. A small amount over a period of time can go a long way in creating a saving pool. Pro tip: Keep your business and personal portfolio separate
Your fortune shouldn't just be the companies future valuation; you should actually invest your profits to make more wealth. You cannot simply rely on business prospects for wealth accumulation when you are running it. Your investment in your business is notional till the time you encash it. In your working years, you need to continue maintaining a portfolio that is diversified among a mix of asset classes such as Debt, Equity, and cash. Such a portfolio is well-equipped to work well for you in different market cycles.
Pro tip: Define goals and set up Systematic Investment Plans (SIPs) towards those specific goals. This will ensure you do not touch that money
SAVING TAXES FOR LIFE GOALS
Saving Taxes means more money in your hand. However, it is of no use if you do not stay invested. Tax-saving instruments such as Equity-linked Savings Scheme or ELSS as they are popularly known are financial instruments that come with a minimum lock-in period of 3 years. They offer you the dual benefit of Tax exemption up to `1.5 lakh annually and capital appreciation as they are basically Equity-oriented Funds. You could use your long-term goals and designate an ELSS scheme for the purpose. This would ensure that you remain invested and committed. Pro tip: Remain invested in ELSS schemes beyond three years to meet long-term financial goals. Do not stop your SIPs.