With nearly 10 million SMEs in Indiaaccounting for approximately 40 per cent of the manufacturing output and employing around 30 million people, the manner in which they invest their money can have a significant impact on businesses.

Speaking on ‘Empowering SMEs: The New Business Mantra,’ at the SME CEO Knowledge Forum, Bhareth L. Ghia, Country Head, SME & Distribution Channel, UTI MF, observed that most of their business is done in cash.

While receivables and accounts payable had clear-cut plans of action, the biggest dilemma for CEOs of SMEs is what to do with their surplus cash. “There is low awareness on treasury management solutions,” he said, adding that the lack of time to follow up on their investments and the ready requirement of liquidity are among the reasons why most of the surplus either lies in current or savings bank accounts, or is invested in fixed deposits.

“There is an alternate option, and larger corporates have been using it for 13 years,” he said, referring to mutual funds. Seeking to dispel myths that investing in this option was illiquid, risky, exposed to market volatility and had low return on investment, he said the only difference from FDs was that the return was not assured.

The ideal solution for SMEs is to park surplus cash in liquid or money market funds, he said, listing out the various options. Money can be invested in liquid funds, where there is no exposure to the money markets. Investment in ultra-short term income funds could range from 1-90 days or from 6-12 months. Money Market Funds offer four options — Liquid Cash plan (less than seven days, and very liquid), MMF (4-15 days), Treasury Advantage Fund (7 days – three months) and Floating Rate Fund short-term plan (3 months and more). These are the products that are available, and can help entrepreneurs improve returns with money at hand, Ghia concluded.

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