Investing in the stock market is a smart move that is if you’re intending to build your wealth over a long period of time. However, this common myth – ‘You need to have large amount of funds to start investing in the stock market in India’ is still prevalent in the minds of investors and often discourages them to kick start their investment journey. But the reality of it all is that you can actually start investing in the stock market with just ₹5000. Yes, even a tiny investment like this could grow substantially over time with the power of compounding.
And not so coincidentally today we will have a look at 5 ways you can start investing in the stock market with just ₹5000. But before we head on to that, let’s have a look at the few factors you should keep in mind before investing in any financial instrument.
Factors to Keep in Mind Before Investing
- Creating a financial roadmap: Before you start investing in any financial instruments or indices, it is important to create a comprehensive financial plan. This can either be done individually or you could consult a financial advisor for assistance. Your financial roadmap should ideally consist of your investment goals, risk appetite, investment time horizon and the types of securities you wish to invest in.
- Identifying your investor risk profile: As we all know; different investments have different kinds of risks associated with them. For example, equity investments are considered to have higher risk in comparison to debt investments. You would need to deduce the type of investor you are, say for example, a risk taker or conservative investor.
- Portfolio Diversification: ‘Never put all your eggs in one basket’. When investing in the Indian stock market, always bear in mind to diversify your investments through different asset classes, themes, sectors and market caps. This will help mitigate risk and generate steady returns over a longer duration.
- Reviewing and re-balancing your portfolio: Just investing your money isn’t enough, you need to regularly review and rebalance your portfolio/investments. This helps you stay aligned with your investment goals and helps you set a proper time horizon within which you can achieve your goals.
5 Ways to Start Investing in the Stock Market with just ₹5000
Exchange Traded Funds (ETFs):
An ETF is a basket of investments that invests in Equities or Bonds. You can invest in a large number of securities in one go. ETFs ideally track or follow a particular index. For example, a NIFTY 50 ETF will track the NIFTY index, so if the index falls so will the ETF and vice versa.
Why an ETF is ideal for you:
- It invests in multiple assets such as bonds, stocks, commodities, currencies.
- They are low-cost investments and have lower risk associated.
- They have cheaper fees compared to other types of funds.
- They are more tax efficient.
Equity-Linked Savings Scheme (ELSS)
An ELSS fund is not just an equity oriented mutual fund but it is also a tax saving scheme that offers you a deduction of up to ₹1,50,000 from your taxable income under Section 80C. This fund helps you invest across different market caps, sectors and themes. However, it does have a lock-in period of 3 years.
Why an ELSS is ideal for you:
- The minimum amount to start investing in an ELSS is as low as ₹500.
- It helps with portfolio diversification.
- ELSS funds do not have an entry or exit load.
- It is a tax saving scheme that allows a deduction of up to ₹1,50,000 under Section 80C.
Penny Stocks
As the name suggests, penny stocks are low-priced stocks with a small market capitalization. But, while they offer potential returns there are a few risks associated with them such as illiquidity, limited shareholder base, and high risk.
Why penny stocks are ideal for you:
- Penny stocks have low entry cost. They are typically priced under ₹10.
- These stocks have a potential for high returns.
- Penny stocks typically belong to new/ emerging companies, thus giving you an opportunity for early investing.
Mutual Funds
A mutual fund is a pooled investment instrument that enables investors to invest in a diversified pool of securities such as equity, bonds, debt and more. It is a widely used financial instrument in the stock market. You can choose to invest in this fund via lumpsum or a SIP. Additionally, you can also choose to invest monthly, quarterly or yearly.
Why a mutual fund is ideal for you:
- Mutual funds are cost effective.
- Minimum investment amount for Mutual Funds is as low as ₹100.
- They are actively managed by experts who are continuously monitoring and rebalancing your portfolio.
Bonds
Bonds are ideally debt instruments that offer a fixed/ steady source of income. Some examples include corporate bonds, government bonds, and sovereign gold bonds.
Why a bond is ideal for you:
- The minimum investment amount required for a bond is ₹1,000.
- They provide a stable source of income.
- Bonds are a safe haven investment since debtholders usually get priority over shareholders.
- They are also ideal for conservative investors.
Conclusion
In summary, its never to late to start investing. But before you do so, make sure you understand the risks and costs associated. In case, you’re having a hard time figuring it out, it’s always better to consult a professional financial advisor. For more information, head on to Jarvis AI – the best advisor in the stock market. We at Jarvis not only provide AI-powered stock recommendations but also portfolio advisory services that are customized to your financial needs.