How to Invest in Mutual Funds on A Small Budget

Investing in mutual funds is an excellent way to grow your wealth over time. However, many people hesitate to start because they believe they need a large sum of money. The good news is that mutual funds are accessible to investors with varying budgets, including those who can only invest small amounts.  
 
Starting with small amounts allows you to begin the investment journey without significant financial commitment. It enables you to gradually build a diversified portfolio, benefit from professional fund management, and leverage the power of compounding over the long term. 
 
Let us now take a look at some of the ways in which you can start a mutual fund investment with small amounts. 
 

Smart Investing on a Small Budget 

Starting to invest with a limited budget is not only possible but can also be highly effective. Mutual funds are designed to accommodate investors with varying financial capacities, including those who can only invest small amounts. Here are a few reasons why investing on a small budget is advantageous: 

• Low Risk: Smaller investments mean lower financial risk. 
• Learning Opportunity: Starting small allows you to understand the market and learn from your investments. 
• Flexibility: You can adjust your investments based on your financial situation and goals. 
• Habit Building: Regular small investments help in cultivating the habit of saving and investing. 
• Diversification: Mutual funds pool money from many investors to purchase a diverse portfolio of stocks, bonds, or other securities, reducing the risk of losing all your money if one investment performs poorly. 
• Professional Management: Even with a small investment, you benefit from the expertise of professional fund managers who make investment decisions on your behalf. 

 

Addressing Common Concerns for Small Investors 

Many new investors worry about the risks and complexities of investing. Here are some common concerns and how to address them: 

• Risk of Loss: All investments carry some risk, but mutual funds are managed by professional fund managers who aim to maximise returns while minimising risk. 
• Lack of Knowledge: You need not be a financial expert to invest in mutual funds. Fund managers and investment advisors are available to help you make informed decisions. 
• High Initial Investment: Many people believe that investing requires a large sum of money, but this is not the case with mutual funds, which often have low minimum investment requirements. 
• Market Volatility: Concerns about market fluctuations are common. However, mutual funds offer various types of funds (equity, debt, hybrid) to suit different risk tolerance levels and investment periods. 

 

What is a Minimum Investment? 

A minimum investment is the smallest amount of money that you can invest in a particular mutual fund. This amount varies depending on the fund and the Asset Management Company (AMC) offering it. This minimum requirement ensures that the fund can operate efficiently and maintain its investment strategy. Most mutual fund investments can be started with amounts as low as ₹1000. 
 

How Exactly Can You Invest Money in a Mutual Fund? 

Investing in mutual funds is straightforward. Here is a step-by-step guide on how to invest in mutual funds in Shriram AMC: 

• Register and Create a Folio: Complete the Know Your Customer (KYC). Authenticate your bank account details to ensure secure transactions. 
• Select the Mutual Fund: Choose the mutual fund you wish to invest in and enter the amount you want. 
• Make the Payment: Transfer the investment amount through your bank account. 
• Receive Confirmation: Once your payment is processed, you will receive a confirmation of your investment. 

 

Which Are Some Other Ways to Invest Money in Mutual Funds? 

There are different strategies to invest in mutual funds. Each has its benefits, and the choice depends on your financial goals and risk appetite. Here is a comparison of some common methods: 
 

Investment Method	Description	Benefits	Considerations
New Fund Offer (NFO)	These are mutual funds that are newly launched.     Investing in an NFO allows you to buy units at their initial offer price.	Investors may benefit from a lower Net Asset Value (NAV) when they invest early.     NFOs can offer unique investment opportunities not available in existing funds.	NFOs may have limited historical performance data, making it challenging to assess their potential.     They also come with inherent risks as the fund's performance track record is yet to be established.
Lump-Sum Investment	Investing a large amount of money at once.	Investor can take advantage of market opportunities and potentially benefit from a favourable market condition at the time of investment.     This approach might yield significant returns if the market performs well.	They are subject to market volatility, and poor timing can lead to substantial losses.     It requires a significant amount of capital and carries a higher risk if the market experiences a downturn shortly after the investment.
Systematic Investment Plan (SIP)	SIPs involve investing a fixed amount of money at regular intervals, such as monthly or quarterly.	Allows to invest regularly, which helps in averaging the cost of investment over time through rupee cost averaging.     This approach reduces the impact of market volatility and builds disciplined saving habits.	SIPs may require a long-term commitment to realise significant returns.     Short-term investments may not show substantial gains, and investors need to be patient to see growth.

 

Conclusion

Starting to invest in mutual funds with a small amount can be both practical and rewarding. By understanding minimum investment requirements, addressing common concerns, and exploring various investment methods, such as NFOs, lump-sum investments, and SIPs, you can make informed decisions tailored to your financial goals.  

Each method offers distinct advantages, allowing you to build a diversified portfolio. With disciplined planning and regular monitoring, you can effectively grow your wealth over time while managing risk wisely. 
 

FAQs 

Here are a few frequently asked questions about mutual fund investments: 

Can I start investing in mutual funds with just ₹1000?  

Yes, you can start investing in schemes of Shriram Mutual Fund through Systematic Investment Plans (SIPs) with a minimum SIP investment amount of ₹1000, making it accessible to even small investors. 

How often should I invest in mutual funds?  

You can invest monthly, quarterly, or annually. Monthly SIPs are popular as they encourage regular investing and reduce market timing risks. 

Can I increase my SIP amount later?  

Yes, most mutual funds allow you to increase your SIP amount through a step-up SIP strategy where the amount invested in a mutual fund increases at regular intervals. 

How do I choose the right mutual fund for small investments?  

Consider factors like fund performance, expense ratio, and alignment with your financial goals and risk tolerance when choosing a mutual fund.