Mutual Fund Minimum Investment with Minimum SIP Amount Explained

What is a Minimum Investment?

Mutual fund minimum investment refers to the minimum amount of money an investor must contribute to an account to start investing. It addresses the perplexing question, ‘What is the minimum amount to invest in mutual funds?’ that first-time investors usually have. Each mutual fund has its minimum investment requirement, ranging from Rs 100 to lakhs of rupees, depending on its investment objective, management fees, and other factors.

Mutual funds with higher minimum investment requirements are typically geared towards institutional investors or high-net-worth individuals. In comparison, those with lower minimum investment requirements are designed to be more accessible to retail investors. Investors must understand this requirement before investing, as it impacts the initial investment cost and potential returns.

Examples of a Minimum Investment

The minimum investment amount varies depending on the fund's investment objective, management fees, etc. Here are some examples of mutual fund minimum investments in India:

1.    Aditya Birla Sun Life Digital India Fund: This fund has a minimum investment amount of ₹1,000. It invests in companies that are expected to benefit from the growth of the digital economy in India.

2.    HDFC Small Cap Fund: This fund requires a minimum investment of ₹5,000. It invests primarily in small-cap stocks, which have the potential to offer higher returns but also carry higher risk.

3.    Mirae Asset Tax Saver Fund: This tax-saving fund has a minimum investment of ₹500. It aims to provide long-term capital appreciation by investing in a diversified portfolio of equity and equity-related securities.

4.    SBI Bluechip Fund: This large-cap fund has a minimum investment of ₹5,000. It invests in blue-chip companies that have a proven track record of performance.

5.    Axis Long-Term Equity Fund: This tax-saving fund has a minimum investment amount of ₹500. It invests primarily in equity and equity-related instruments to generate long-term capital appreciation.

How Exactly Can You Invest Money in a Mutual Fund?

Before you learn about the minimum amount for mutual funds and start investing, you must learn how to invest in mutual funds!

One method is investing via new fund offers (NFOs). These are similar to IPOs in mutual funds, where the fund collects fresh capital from the public at a unit value of Rs.10. NFOs of multi-cap funds and Balanced Advantage funds have recently gained immense popularity, and mutual fund companies regularly keep releasing new NFOs. 

Another way to invest is by making a lump sum investment in any mutual fund. The fund typically offers continuous buying and redemption at a NAV-linked price for all open-ended funds. When you buy from the asset management company (AMC) in a lump sum, there are no upper limits on the amount you can invest. 

The third method is purchasing mutual funds through a systematic investment plan (SIP). Under this approach, you agree with the fund to invest a fixed amount regularly on a particular day of the month. You provide the mandate for SIP to the fund, and on the SIP date, the fund automatically debits your bank account and credits your fund account with equivalent units based on the NAV.
 

Which is a Better Way to Invest; NFOs, Lump-Sum buying or SIPS?

Deciding on the ideal investment method in mutual funds can take time and effort. It ultimately depends on your investment objectives, risk appetite, and available funds. Let's examine the advantages and disadvantages of the three popular investment methods: NFOs, lump-sum buying, and SIPs.

●    NFOs: These are an excellent way to invest in a new mutual fund. The unit price is usually ₹10, making it easy for investors to participate. NFOs offer the potential for significant long-term returns. However, they demand a track record of performance, making them risky investments.

●    Lump-Sum buying: On the other hand, lump-sum buying offers immediate ownership of a substantial number of units in a mutual fund, making it ideal for investors with a substantial amount of available capital. It further offers the potential for high returns, especially if the fund performs well. However, there is always the risk of investing at the wrong time and potentially losing considerable money.

●    SIPs: Lastly, if you're considering what is the minimum amount to invest in a mutual fund and planning on investing on a strict budget, then SIPs may be just what you’re looking for. They allow investors to contribute a fixed amount at regular intervals, enabling them to accumulate units gradually, making it ideal for beginners with a small amount of capital to invest.

SIPs also allow for rupee-cost averaging, where investors can leverage market fluctuations and buy more low-price units. However, the returns may be lower than lump-sum buying, and investors may miss out on opportunities if the market surges.
 

What is the Minimum that can be Invested in Mutual Funds?

The minimum amount for mutual funds varies based on the mutual fund and the type of investment. In India, the Securities and Exchange Board of India (SEBI) mandates that mutual funds offer a minimum investment amount of ₹100 for lump-sum investments and ₹500 for Systematic Investment Plans (SIPs).

Some mutual funds may have a higher minimum investment amount. This information can be found in the mutual fund's offer document or on the Asset Management Company (AMC) website. While the minimum investment amount may be low, mutual funds are long-term investments. Investors should consider their investment objectives, risk appetite, and financial goals.

In addition to the minimum amount to invest in mutual funds, investors should also consider the expenses associated with such an investment. Mutual funds charge fees, such as management fees, administrative expenses, and other charges, which can reduce the overall returns on the investment. It is essential to understand the fee structure before investing.

Investors can also choose between different types of mutual funds based on their investment goals and risk appetite. For instance, equity funds invest primarily in stocks, considered high-risk investments, while debt funds invest in fixed-income securities and are considered low-risk investments. As the name suggests, hybrid funds invest in a mix of equity and debt instruments and offer a balanced approach to investing.
 

What is the Minimum Amount for SIP?

The Minimum SIP Amount is the lowest amount you need to start investing regularly in a mutual fund through a Systematic Investment Plan (SIP). Most mutual funds in India allow you to begin with as little as ₹100 to ₹500 per month, making it easy even for beginners to get started. However, the Minimum SIP Amount can vary depending on the fund house and scheme. While equity mutual funds generally start from ₹500, some ultra-low SIP plans, especially in digital platforms, offer ₹100 entry points. Choosing a smaller Minimum SIP Amount allows you to build investment discipline and experience the power of compounding over time. As your financial comfort grows, you can increase your SIP amount gradually. The key is to start early, even with a small amount, and remain consistent.

Conclusion

In conclusion, the minimum amount to invest in mutual funds in India has been set at Rs. 100 for lump-sum investments and Rs. 500 for SIPs by the Securities and Exchange Board of India (SEBI). 

However, some mutual funds may have a higher minimum investment amount. It is crucial to note that while this amount may be low, mutual funds are long-term investments that require careful consideration of investment objectives, risk appetite, and financial goals.