Investment in stocks or mutual funds does not call for any minimum amount. You can invest any money no matter big or small. When you wish to become an investor in capital markets, the first step you do is to open demat or mutual fund account with respective brokerage and fund management companies. They are facilities that enable you as an investor to conduct and assist in investment activities. The charge that takes to open and maintain these accounts is the initial investment we can say. You can even buy a single share whose value is ₹ 100 and only that will be your minimum investment. If we talk about non-financial investment then we certainly have a lot to discuss here.
Though investors need not be proficient in market information or share trading, it is always advisable to learn some basics, as these markets are highly dynamic in nature. First and foremost thing to decide is the goal of an investment. Share markets are often misunderstood as craze or a fancy race where people try to prove their skills in terms of profit earned. But it is absolutely not. At one point even other market participants involved missed to be watchful of the impending risks. Incidents like a great recession of 2008 came as a lesson for the entire world. Capital markets are in fact the backbone of industries in a country which gives oxygen for firms to run efficiently and provide for the entire economy. They should be taken less as battlegrounds and more as avenues to cater to a larger society.
When you decide on your investment goals and do a little preparation, the path will be cleared. It also gives a picture of how much to invest to give it a start. There are few concepts which will enrich any investor about his finances. Where will my money be invested, what is a profit, how much profit is good profit, what is the risk involved, what is market volatility, risk-return trade off, and are there any regulatory authorities, if so who are they, etc are questions to which he needs to find answers.
Less apparent influencers
Capital market is a unique game where the players operate with risk as an inherent factor. It is a lot less like purchasing a simple commodity say gold or diamonds. Even when constructing a house or buying a fixed income property, where you get a blueprint approved, estimate the cost of construction and then start pumping money into it, things are pretty much predictable. They come with a vague idea as to how we take back the profits or enjoy the benefits. Capital markets are highly volatile and are influenced by many factors. These influencing factors come from within the companies, related industries, government policies and even international markets. The economy changes with every season, government policy, demand-supply differences, currency regulations, foreign relations etc. This makes the game complicated and drives people to be cautious of their investments. When the risk is an innate factor the amount of money you are willing to invest becomes the decisive element in inviting or minimizing it.
When we talk about mutual funds, for those who are ready to invest but apprehensive of giving away huge sums of money, the fund management companies have come up with a great option called systematic investment plan (SIP). This allows people to invest money as less as few hundreds periodically in a given scheme or fund. For a long time, minimum investment in mutual fund was Rs 500/-. But companies realised that small investors from remote places lack exposure to market information and are restricting themselves from investing. On surveying they understood that they are willing to test the process before they make any actual investment into mutual funds or stock market. To enable this most of the companies have started SIPs with minimum of Rs 100/-. After observing how mutual funds operate for few months and getting a hold on the idea of investment, clients started to invest in high value SIPs or take more SIPs for the minimum value.
Reliance Mutual Fund was the first company to launch SIP for just ₹ 100 per month and it paved the way for new concept called micro SIPs. Big advantage of micro SIPs is that they do not require PAN card or complete Know your customer (KYC) documents. Photo identification will do for those who are willing to purchase micro SIPs. Companies aimed at rural India where even daily workers can afford investments. ICICI Prudential Mutual Fund, Quant Mutual Fund, DHFL Pramerica Mutual Fund, Aditya Birla Sun Life Mutual Fund, IDFC Mutual Fund, and UTI MF have some schemes in the debt and equity categories that allow investors to invest as little as ₹100. [Source: Economic Times]
Benefits of minimum investment:
Offering investment for the least amount encourages more people to turn into new investors. Apart from financially independent people like employees, businessmen, etc a lower capital motivates many others from untapped corners of life. Home makers, college graduates, retired employees, minimum wage workers have become more enthusiastic to invest without fear of losing. The fact that they need not be proficient in investing or conduct extensive market research comforts them to a great extent. Today’s technology has made it even simpler for a common man to take care of his business. They can utilize the services of companies, their fund managers, stockbrokers, etc equally with those of successful investors to earn good profits. Even in case of stocks internet provides almost all the basic information that is essential to perform well in the markets. Every brokerage company offers its extensive research knowledge to their investors.
Now that we are clear about the minimum investment let us discuss how much to invest when you are a newbie and what factors influence this decision:
Factors that decide the initial investment:
- Financial capacity:
If you are someone with a stable regular income you can venture into the capital markets with an amount that is comfortable to you, after meeting all other needs. One mistake that should be avoided when choosing the minimum investment is to go hasty and invest all that you have. Greed does not feed. There should always be a backup or a margin that can support you in case of a loss. And also the new investment decisions should not hinder the maintenance of existing needs or wants. It is always suggested that the ground is well set before inviting the risk factor into your finances. Any investment for that matter comes with a certain degree of risk. The point here is to prepare for it rather than be scared of it. Go slow and go prepared.
Goal of investment:
Are you planning for your retirement or child’s education or saving for the big day to settle luxuriously in a palatial house? These tell you how much to invest. Once you have assured yourself of your financial constraints and benefits you can always take a chance to try your fortune from alternative sources of income. Not only they come handy for the purposes, they give a great sense of satisfaction and security for future uses.
Risk bearing capacity varies from one investor to other. This depends on the age of investor, income, goals, attitude, etc. Having the ability to take risk is not alone sufficient. It should be coupled with relevant knowledge and information. Share price or fund value contributes much less to profit or loss. It is the misjudgement or overconfidence of investor that leads him to losses. Some investors choose to earn a consistent income from shares. They hold them for years and receive bonuses and dividends. Some operate as day traders making profits every single day while some go for SIPs allocating a fixed part of their salary for investment.
At what stage of your life are you investing is important. A retiree plans his future in a different way than a person who is beginning his career. Both have different risk appetites and financial goals. Investor may consider involving large amounts when he has time to take back the profits. Large turnovers in capital market demand years of time, patience and hard work. And how far is the investor from his life goals also decides how much he has to invest. For example, A and B decide to invest in mutual funds for their children education. A has a kid who is nearing his graduation, while B has his kid still in school. So obviously A has to take a higher value SIP to reach the desired amount that could provide for his kid’s graduation fee. And B has years together in his hand to pool required funds and hence he can choose smaller SIP.
These are only few major aspects which play a role in investment decisions. There is no hard and fast rule as to how much to invest or when to invest. Most often financial decisions are relative and highly arbitrary in nature. Personal choices and situations matter than any broader aspects. With every step in the ladder of investment, the investor has a great scope for learning apart from looking out for profit or loss. If he accumulates this learning without getting desperate or overconfident, he definitely reaches the point of wealth maximization wherever he invests. Not to forget patience and perseverance are the keys.