Mutual Fund Starter Pack: How Much Should You Really Invest?

12 July, 2024

Synopsis

• Beginners can start with investments of just ₹100-₹1,000 via monthly SIPs. Thanks to the power of compounding, these small investments have the potential to grow significantly over a long period of time.

• The ideal investment amount depends on the individual’s financial objectives, risk tolerance, and cash flow. However, one may follow the thumb rule of investing 20-30% of monthly income.

• The HDFC Bank SmartWealth App allows investors to start with small amounts after helping them determine their risk appetite. The app, then, suggests options based on financial targets and the investors' risk profile.

Mutual funds have become an increasingly popular investment option for investors looking to grow their wealth. But when investing money for beginners, a few common doubts arise: how to start investing money, and how much money do you need to get started? Is ₹1 lakh the minimum amount required? What if you don't have that much savings - does that mean you can't invest yet?

You're not alone! Many first-time investors find themselves paralysed by uncertainty when taking the initial plunge.

While there is no single ideal amount, here are some guidelines for investors learning to invest money based on their objective, time horizon, and risk appetite:

Start Small, Think Long-Term

Especially for young investors getting started, it's fine to begin with a small monthly investment for ₹100- ₹1,000. If you are investing regularly via SIP in a well-diversified fund it can grow and give a good return over 10+ years. So, one can start minimum amount while you are learning the ropes.

For example, investing just ₹500 monthly in an equity fund earning 12% annual returns will grow to around ₹5 lakh in 20 years. Make it ₹5,000 monthly, and your corpus value leaps to ₹50 lakh for the same investment period!

So, don't let the lack of a huge starting amount deter you from getting into mutual fund investing today. Small, consistent investments done regularly can potentially build you long-term wealth.

Align with Your Financial Targets

Start by determining the target corpus you need to achieve major financial objectives like retirement, children's education, house down payment, etc. Then, work backwards to arrive at the monthly investment required to reach those targets within the time horizon.

For long-term objectives like retirement, investing ₹5,000-8,000 per month in equity funds early on can make a huge difference due to the power of compounding. Shorter 3-5-year plans may require more considerable monthly investments.

Factor in your Investment Appetite

Younger investors generally have a higher risk tolerance and longer investment horizon. They can allocate more towards equity funds with higher growth potential. On the other hand, those about to retire may want to take less risk and thus limit their equity exposure. Therefore, they may park more in debt funds.

If you’re not sure about how much to park where, the HDFC Bank SmartWealth App can help you find your risk appetite and provide investment options based on your various financial targets.

Analyse Cash Flows and Budget

Arrive at an investment amount that fits comfortably within your monthly budget without squeezing other expenses. A good investment practice is to aim for investing 20-30% of your net monthly income. The ideal amount will vary depending on your financial objectives, risk tolerance, and liabilities.

Don't be Obsessed with Timing the Market

Rather than waiting for the "right" market conditions, invest a fixed amount regularly via SIPs, irrespective of market highs and lows. Rupee cost averaging helps overcome timing challenges.

Watch Out for Minimum Investment Requirements

While many funds have minimum investment amount requirement as low as ₹500, others have a higher limit such as ₹5,000 or more. Consider funds that offer easy entry with a low minimum investment requirement.

Leverage Technology to Invest Small Amounts

The HDFC Bank SmartWealth App allow investors to start SIPs with as little as ₹100 per month. This is a great option for new and young investors who want to try out the markets with small amounts before they invest heavily.

Increase Contributions Over Time

As your income grows, consider stepping up your SIP amount annually by 10-20% to combat inflation. A disciplined investing approach will help you meet long-term target comfortably.

While the ideal SIP starting amount depends on your unique situation, beginning your mutual fund investment journey with ₹100- ₹5,000 invested regularly is reasonable for investors. Persist with patience and your money can grow into a sizeable corpus over time.

The HDFC Bank SmartWealth App helps you with precise investing as it suggests investment options that are in sync with your risk tolerance and investment objectives. Download the app today and take charge of your financial future.
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