Mutual Funds
by 5paisa Research Team Last Updated: 2023-07-04T12:47:59+05:30
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Introduction

Mutual funds are a popular investment option among individuals wanting to diversify their portfolio by investing in various assets. One of the most important factors to consider before investing in a mutual fund is the minimum amount for mutual funds, i.e., the minimum amount required to open an account and start investing.

Understanding this is crucial, especially for novice investors, as it helps them determine if the fund suits their investment goals and budget.
 

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 Rs. 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 Rs. 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 Rs. 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 Rs. 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 Rs. 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 Rs. 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 Rs. 100 for lump-sum investments and Rs. 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.
 

Will the Minimum Investment go Lower from Here?

The minimum amount to invest in mutual funds could go lower. This trend is already visible as some mutual funds offer daily and weekly SIPs with lower investment requirements. Additionally, the mutual fund industry has introduced micro-SIPs with a minimum SIP amount of Rs.100 to tap into the rural sector, allowing investors in remote areas to invest in regulated entities and grow their money.

While a lower minimum investment amount may sound appealing, it is essential to consider the overall investment strategy before investing in mutual funds. Consulting a financial advisor and developing a methodical plan can help investors decide the method and mutual fund to invest in.

Therefore, the minimum investment amount in mutual funds may go lower. It is essential to clearly understand investment objectives, risk tolerance, fees, and charges associated with investing in mutual funds to make informed decisions about investing.
 

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.
 

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Frequently Asked Questions

Yes, you can invest Rs. 100 in some mutual funds through SIPs or micro-SIPs. However, it is important to note that the minimum investment amount may vary depending on the mutual fund and the type of investment.

The ideal amount to invest in mutual funds varies based on an individual's financial situation, investment objectives, and risk tolerance. While there is no fixed amount, investing a minimum of Rs. 5,000 to Rs. 10,000 in mutual funds is generally recommended.

SIP and Lump-Sum investments are two different ways to invest in mutual funds. SIP involves investing a fixed amount regularly at fixed intervals, while Lump-Sum investments involve investing a large amount of money at once.