How to Start Investing With a Small Amount of Money?

This is the most common misunderstanding about making investments is that you require a huge sum of money to start an investment with a small amount of money is not possible. This misunderstanding prevents new investors from taking advantage of the benefits of beginning early investments and increasing their wealth. They continue to wait until they save enough money to invest. They are also worried about the financial losses which makes them hesitant to make a decision for investment.

What is investment?

Investment means to allocate your funds into any type of asset where you can earn money in return of that investment. The investment can be big or small- it always pays. There are many types of financial investments which include mutual funds, unit-linked investment plans, endowment plans, stocks, bonds, and others. Undoubtedly, the main objective of all investments is to increase the value of your invested capital.

Investing money in an asset to earn profit within a specified period is known as investment. There are many different plans for investments like life insurance, retirement funds, ULIPs, mutual funds, and more. An easy way of investing involves buying a financial asset to generate future income or sell it later for a profit.

Benefits of investment.

Investing involves using your funds into a financial strategy that has the potential to grow or generate earnings. As more responsibilities increase, higher levels of financial resources are required. The following are key goals for investment:

• Keep your money safe by making investments. Placing your money in a savings account will protect it from excessive spending and inflation. Investing can help you beat inflation too.
• Create your fortune: Investing your money in some schemes is the sole method to gain profit for you. It enables your money to earn interest, and by reinvesting that interest, it will begin to generate additional interest.
• Creating some emergency funds for unforeseen circumstances: Establishing savings for any emergency can assist you in facing any challenge of life. It’s crucial to save money for unforeseen circumstances when you are in a stable financial situation.
• Guarantee a retirement without stress: Once you have finished working, you will no longer have a steady source of income. Planning for retirement will provide you with the financial stability needed to fully enjoy your after-retirement life.
• Increase your savings to the highest possible amount: Investing in tax-saving options like life insurance plans, ULIPs, PPF, NPS, etc. can reduce your taxable income. Therefore, through strategic investments in specific assets, you can greatly minimise your total tax responsibility.
• Helps in accomplishing larger aspirations of life: It is doubtful that your salary alone will be enough for you to afford a car or a home for your family. However, with a small investment of money, you can reach these goals within a few years.

How to make an investment with a small amount of money?

A common misconception about investing is that you require a large, substantial bank account to begin. It’s not a bad idea to start your investments on a small scale. The crucial part is to begin, invest your money smartly, and keep going. These are some of the methods for making an investment with a small amount of money–

• Manage your finances and loans: Before starting to invest, evaluate the expenses associated with your current loans and think about how quickly you can eliminate them. The credit cards with high interest and certain student loans should be the priority. Paying off some high-interest debt before investing is a wiser choice. So you must clear high-interest debt before investment.
• Automated savings: Consistently saving a specific, small amount each month will lead to benefits in the future. If you are unable to spare money easily, you can opt for automatic deduction of a small amount of money from your account and automatically money will be moved from non-savings accounts to suitable savings and investment accounts.
• Fixed Deposit: Bank fixed deposits are the easiest and most commonly chosen investment options, as they are seen as the most secure and advantageous for long-term investments and also this option can be used with a small amount of money. Choosing public sector banks is recommended to guarantee the safety of your funds.
• National Savings Certificate: The Indian Postal service provides the National Savings Certificates. You can buy these certificates at any post office in India. Investing in NSC can be started with just Rs. 100. NSC is considered to be a top investment option, providing high returns with minimal risk.
• Make an investment with your tax refund: If you struggle to save money annually, try using some or all of your tax refund to begin investing. It can be managed easily at year-end when you unexpectedly receive extra money which was not intended for expenses.
• Investing in PPF: If you are new to investing and want secured investment, it is best to start with a government-backed scheme like PPF, where you can earn a good profit from the interest.
• Investing in NPS: You have one more option to invest: to put your money in the NPS, which stands for the National Pension Scheme. This is mainly for planning for retirement.
• Increasing PF amount: As a working professional, you have a Provident Fund (PF) scheme from the company where they contribute 12% of your basic salary, equal to your own contribution. If you are interested, you can go for VPF, a Voluntary Provident Fund.
• Mutual Funds: You have the option to go for Mutual Funds. You can begin investing in mutual funds through SIP mode with as little as INR 200 or 500, where a fixed amount will be deducted from your account every month. The fund manager manages your money, so you need not monitor regularly.
• Trading in the stock market: Once you gain some experience, you can begin trading stocks by purchasing or selling shares directly. This can be started with a very small amount of money.
• Investment in Real Estate: After a small investment, if you accumulate a good profit, you have the option to invest in real estate such as land or property or you can purchase property on an EMI basis.
• Equities: Equity means making an investment in any company by possessing stocks and receiving dividends in return for that investment. Here you can start an investment with a small amount of money.
• Securities: Purchasing bonds is another type of investment which involves loaning funds to a government or another entity. In return, you are given consistent and fixed interest and the principal amount of money after the maturity of the bond. This is also a small amount of investment.
• Unit Linked Insurance Plan: ULIPs, also known as Unit Linked Insurance Plans which are life insurance schemes combined with investment. In this scheme, besides life insurance cover, some of the money from premiums is invested in different plans, giving the investor the opportunity to make returns linked to the market.
• Policies for investment for the future: Endowment policies are a kind of savings or investment plan, as well as a life insurance plan that provides insurance coverage and tax advantages both. At the time of maturity of the insurance term or upon the death of the insured, whichever occurs first, a single payment is made. These plans are beneficial for long-term financial planning as they guarantee profits and provide death benefits.

Bottom line.

If you want to start investment with a small amount of money, you must initially grasp your financial goal and then choose where to invest accordingly. Besides investing in tangible assets like property and many different types of financial instruments or valuable items, there are other categories of investments: stocks and bonds. Investing in equity carries the possibility of increased profits as well as increased risk. While the other financial instruments are more secured yet provide lower yields. Most of the above are basic and risk-free investment options which can benefit in long-term and retirement planning. In just 2-3 years, or even sooner, you can see a good money creation. Investment strategies, and the benefits of compounding encourage you to invest more.