Mutual funds are gaining immense popularity due to their numerous advantages. They diversify risk, simplify the investment process, offer a wide choice, and facilitate achieving financial goals. Contrary to a common misconception, investing in mutual funds doesn’t demand substantial initial capital. You can start with small amounts and gradually increase your investment as your income grows.
What is a minimum investment?
The minimum investment refers to the minimum amount of money required to initiate an investment in a mutual fund. Understanding that different mutual funds have varying minimum investment criteria is essential. This amount can be categorized into lump-sum investments and Systematic Investment Plans (SIPs).
Examples of a minimum investment:
Lump-sum investment: The common misconception is that a lump-sum investment involves investing a substantial amount at once. Typically, mutual funds have a minimum lump-sum investment requirement. For instance, Fund A might require a minimum of Rs 5,000, while Fund B might require Rs 1,000 as the initial investment. However nowadays, there are various schemes with minimum investment amount as low as Rs. 100 or Rs. 500. It’s crucial to consider your financial goals and risk appetite before opting for a lump-sum investment in mutual fund.
Systematic Investment Plan (SIP): SIPs offer a disciplined and convenient way to invest in mutual funds. They allow you to invest smaller amounts at regular intervals, like monthly or quarterly. The minimum SIP amount can vary from Rs 100 to Rs 1,000, depending on the mutual fund scheme. SIPs are particularly popular among investors who want to benefit from rupee cost averaging and reduce the impact of market fluctuations.
Which is a better way to invest: NFOs, Lump-Sum, SIPs?
- New fund offers (NFOs): New Fund Offers (NFOs) can be a tempting investment option, as they offer a chance to invest in a new mutual fund scheme at its inception. However, they come with certain risks. Since NFOs do not have a track record, predicting their performance is challenging, making it a speculative investment.
- Lump-sum investment: Lump-sum investments involve putting a sum of money at one go into a financial instrument. This method can be advantageous in certain situations, such as when there’s a market downturn or when the investor has a substantial amount to invest.
- Systematic investment plans (SIPs): SIPs are a disciplined approach to investing, wherein investors contribute fixed amounts regularly over time. SIPs offer rupee-cost averaging, reducing the impact of market volatility.
What is the minimum that can be invested in mutual funds?
The minimum investment required in mutual funds varies depending on the fund house and your specific scheme. As mentioned earlier, investment can start as low as Rs. 100.
Will the minimum investment go lower from here?
The mutual fund industry has witnessed significant growth, attracting investors from all walks of life. As the sector expands and competition intensifies, some fund houses might lower their minimum investment requirements to attract more investors.
Additionally, regulatory changes and market dynamics can also influence minimum investment thresholds. However, it’s crucial not to focus solely on the minimum amount but on the fund’s performance, reputation, and alignment with your financial goals.
To wrap up
Investing in mutual funds is an excellent way to grow wealth and achieve financial aspirations. Remember that the minimum investment required may vary across mutual funds and choosing wisely is essential based on your circumstances.