How to Start Investing with Little Money: Smart Strategies for Beginners

Overview

You may hear people say “There’s no investment like real estate”. Although the statement holds weight, the true measure of investment success lies not in the initial sum but in its growth and consistency over time, especially for beginners.

In reality, you don’t need a hefty sum to begin building wealth. Rather it requires consistency and dedication and just a few hundred to begin with. With careful planning and smart choices, even small amounts can be invested to gain big returns in the long run. But how? 

This guide will equip you with practical strategies and investment options to help kickstart your investment journey with a little money. So without any fuss, let’s roll.

Why Investing is Important

But I am earning enough money, why should I invest?

The first rule of a good investment is to know ‘why‘ should you do ‘what’ they said you should do. Among the billions of people with billions of reasons, the most prominent reason why one should invest is – “is to make their money work for you“. Because it’s not about making money, it’s about putting it to some use.

Here are some reasons why investing is important:

• Inflation erodes purchasing power; investing fights back.
• Savings accounts can’t keep up with inflation.
• Early investing maximizes the power of compound interest.
• Financial independence starts with consistent investing.
• Don’t let potential earnings slip through your fingers.
• Small steps lead to big financial goals.
• Investing has become more accessible than ever.

Also Read: Diwali Muhurat Trading: A Blend of Tradition and Prosperity

When Should You Begin Investing?

The earlier, the better.

The magic of compound interest is most powerful when given enough time to work its wonders. Starting to invest early in life allows your money to grow exponentially over the years. However, it’s never too late to begin. Even if you start investing later in life, consistent contributions can still yield significant returns.  

Remember, investing is a long-term game. Short-term fluctuations in the market should not prevent you from your investment goals.

Best Ways to Invest with Little Money

Investing with a limited budget is entirely possible, and there are several effective options available. Here are some of the best ways to invest with little money:

Systematic Investment Plans (SIPs)

SIPs allow you to invest a fixed amount regularly in mutual funds, starting as low as ₹500 per month. This method helps in averaging the cost of investment and building a substantial corpus over time.

• Risk: Moderate. Mutual funds invest in stocks, which can go up and down in value.
• Return: Potentially high, around 12-15% per year on average over the long term.

Public Provident Fund (PPF)

PPF is a government-backed savings scheme that offers attractive interest rates and tax benefits. You can start with a minimum investment of ₹500 per year, making it a safe long-term investment option.

• Risk: Very low. PPF is backed by the government, so it’s very safe.
• Return: Around 7% per year, which is fixed and tax-free when you withdraw.

Recurring Deposits (RDs)

RDs allow you to deposit a fixed amount every month for a specified tenure. RDs are a popular investment option in India that encourages regular savings.

• Risk: Very low. PPF is backed by the government, so it’s very safe.
• Return: Around 7% per year, which is fixed and tax-free when you withdraw.

Equity Mutual Funds

Investing in equity mutual funds can be done through SIPs, allowing you to enter the stock market with a small amount. These funds are managed by professionals and offer the potential for higher returns.

• Risk: Very high. Equity mutual funds invest mostly in stocks, which can go up and down a lot in value.
• Return: Can be very high, around 12-15% per year on average over a long time.

Gold ETFs

Gold Exchange-Traded Funds (ETFs) enable you to invest in gold without the need to buy physical gold. You can invest in gold ETFs with small amounts, and they provide liquidity and ease of trading.

• Risk: Moderate. The price of gold can go up and down based on demand.
• Return: Around 8-10% per year on average over the long term.

Government Savings Schemes

Schemes like the Sukanya Samriddhi Yojana (for girl children) and the Senior Citizens Savings Scheme (for seniors) require minimal investment and offer attractive returns.

• Risk: Very low. These schemes are backed by the government, so they’re very safe.
• Return: Varies by the scheme, but around 7-8% per year.

Stocks

If you’re willing to take on more risk, consider investing in stocks directly. With platforms that allow buying and selling shares, you can start investing in high-value stocks with small amounts.

• Risk: High. Stocks can be very risky, and you can lose money if the company doesn’t do well.
• Return: Potentially very high, around 15-20% per year or more, but only if the company is successful.

Also Read: Understanding the Benefits of Holding Stocks for the Long Term

Bonds and Fixed Deposits

Investing in government bonds or bank fixed deposits can provide stable returns with minimal risk. Many banks offer FDs with low minimum investment requirements.

• Risk: Low to moderate. Government bonds are safer than corporate bonds, which have more risk.
• Return: Fixed deposits typically yield around 6-7%, while bonds can range from 6-10%, depending on the issuer.

Unit-Linked Insurance Plans (ULIPs)

ULIPs combine insurance and investment, allowing you to invest in equity or debt funds. While they have higher charges, they can be a way to start investing with insurance coverage.

• Risk: Moderate to high. ULIPs are linked to the stock market, so their returns depend on how the market performs.
• Return: Can vary widely, typically around 8-12% per year.

Real Estate Investment Trusts (REITs)

REITs allow you to invest in real estate without needing large amounts of capital. You can invest in REITs through the stock market, making it accessible for small investors.

• Risk: Moderate. REITs are affected by the real estate market and can go up and down in value.
• Return: Around 8-12% per year, including dividends.

In A Nutshell

To grow with the pace of inflation, investing is crucial, however, it doesn’t require a big chunk to begin with. With careful planning and discipline, even small amounts can grow into significant wealth over time. While there’s no guaranteed path to financial success, diversifying your investments across various options can help avoid risks. Remember, consistency is key. By starting early and making regular contributions, you can harness the power of compound interest to work in your favour. Always conduct thorough research or seek professional advice before making investment decisions.

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