Dream big, start small: Begin your mutual fund investment journey with just Rs. 500

Many people shy away from mutual funds believing that they are expensive and require a large investment. This is a myth. You can begin your mutual fund investment journey with as little as Rs 500.

This article tells you more about how small but consistent investments have the potential to build wealth over time.

• Table of contents

1. Can you invest in mutual funds with just Rs. 500
2. Is Rs. 500 enough?
3. Things to consider

Can you invest in mutual funds with just Rs. 500?

A mutual fund is a type of investment vehicle that pools money from various investors and puts it into stocks, bonds, or other securities. This makes it possible for you to begin your investment journey with only Rs. 500.

A popular route for mutual fund investments is a Systematic Investment Plan or SIP. When you invest through SIP, you put in a fixed amount into the mutual fund at regular intervals. These intervals could be daily, weekly, monthly, quarterly etc.

Is Rs. 500 enough?

Small but consistent investments, especially in equity mutual funds, have the potential to build wealth over time. This is because of the effect of compounding on your investments. When the returns on an investment are reinvested, they go on to earn further returns. This has the potential to result in accelerated growth.

Moreover, if you’re young and your goals are several years away, Rs. 500 can be a good starting point. It can potentially help you create a modest corpus that you can then build on when your income increases. Additionally, it can help create a disciplined investment habit.

An SIP calculator can help you see the potential return on a Rs. 500 SIP. All you need to do is enter the SIP amount, tenure and expected rate of return to see the result. Let’s assume that you plan to do a monthly SIP of Rs. 500 in an equity mutual fund for 10 years. Your expected rate of return, based on the fund’s historical performance, is 12%* per annum.

Your total invested amount at the end of 10 years will be Rs. 60,000 and the potential corpus may amount to Rs. 1,15 lakh. Over 30 years, you would have invested Rs 1,80,000 and your corpus may potentially grow to more than Rs. 17 lakh. This example also shows the power of compounding in action – over 10 years, your investment grows by over 90% approximately, whereas in 30 years, it grows by over 800%.

*Do note that this example assumes a fixed and consistent rate of return. In reality, returns are not guaranteed and may fluctuate based on market trends and other factors. Moreover, past performance may or may not sustain in the future.

A small SIP amount may also suit those who save money in traditional avenues and want to try out mutual funds, but with a small investment.

Things to consider

Here are some factors investors should keep in mind when contemplating a Rs. 500 SIP.

• Start early: The earlier you start investing, the more time your money has to benefit from compounding. So, if you are considering a low initial investment, it would be advisable to start early.
• Choose the right scheme: If long-term capital appreciation or wealth-building is your goal, an equity scheme may be suitable. On the other hand, if you’re looking at building an emergency corpus or a liquid cash reserve, you may consider a short-term debt fund.
• Be consistent: Choose the investment frequency that works best for you, and then diligently stick to it. It is advisable not to stop or pause your SIPs, even if your expenses increase. It is also important to be patient and not expect remarkable growth in the short term.
• Increase your SIP amount or opt for a step-up SIP: If your income increases or your expenses decrease, you can increase your SIP amount. You can also opt for a step-up or top-up SIP that enables you to increase your investments by a fixed percentage at regular intervals. For example, if you choose an annual 10% top-up, your SIP amount will increase from Rs 500 to Rs 550 in the second year, then Rs 605, and so on. Using a Step Up SIP Calculator can help you see how these gradual increases can potentially impact your overall returns. Based on your initial SIP amount, tenure, expected rate of return and step-up percentage, the calculator estimates the potential size of your final corpus. However, actual returns depend on market conditions and may be higher or lower than your expected rate.
• Supplement it with lumpsum investments: When you have surplus funds – such as after a bonus – you can consider investing it in lump sum in the scheme where you have an ongoing SIP.
• Flexible planning: Revisit your investment plan when you have more funds or if your goals evolve.
• Monitor your investments: Track your investments periodically to see if the returns are in line with your expectations and goals. However, don’t give too much importance to short-term fluctuations or brief periods of underperformance.

Conclusion

Even Rs. 500 can be a good starting point and an important step towards potentially achieving your financial goals. By starting early and being consistent, you can build a habit of investing that can pay off significantly in the long run. After all, every journey begins with a small step.

FAQs

Is it safe to invest in mutual funds with just Rs. 500?

No investment is risk free. However, investors can mitigate risk by creating a diversified portfolio, choosing the right scheme type, and selecting a suitable investment horizon.

Can compounding help me grow my wealth faster?

Compounding is the phenomenon through which the returns your investment generates earn additional returns. This has the potential to resulting in a snowball effect over long periods. However, the return potential will be linked to market performance. Moreover, it is essential to maintain investment discipline and adopt a long-term approach to potentially get the full benefits of compounding. Compounding happens in both lumpsum and SIP. You can use a compound interest calculator to see the potential impact of compounding on a one-time lumpsum investment. You can also use a lumpsum investment calculator for such an estimate.

Why should you invest in Rs. 500 monthly SIP?

Starting small makes it easier to incorporate investing into your financial plan. As a result, even if you don’t have a significant sum to invest, you can get a head-start with a small investment and scale up when your disposable income rises. By investing a fixed amount regularly, you benefit from rupee cost averaging, which helps reduce the impact of market volatility. Due to the power of compounding, consistent investing through SIPs can potentially lead to wealth creation over the long term. SIPs instill financial discipline by encouraging regular investing.

What are the advantages of Rs. 500 monthly SIP?

Consistent investing over the long term, combined with the power of compounding, can help build wealth over time. By investing a fixed amount regularly, you benefit from rupee cost averaging, which helps reduce the impact of market volatility. SIPs encourage disciplined saving and investing habits.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.