Let us put it this way, you can buy 1 stock so if you have Rs 7,500 in your trading account, you can buy 3 shares of Reliance Industries or 5 shares of Infosys. But that is not the point. There is a basic minimum amount you do require for momentum. What is the minimum amount to invest in the stock market? Is the minimum amount to invest in the share market within reach of most investors? Let us look at the minimum amount to invest in the stock market in India and the minimum money to start trading in the Indian equity markets.
Stock market investments are often considered lucrative and a place for quick money. That may not be fair and largely incorrect too. Investing in a disciplined manner is a much better idea than trying to buy on opportunities. As a trader who is just about to start on the equity journey, you may wonder about the minimum amount to invest in the stock market in India to be able to take reasonable and meaningful positions. We need to understand if there is a scientific method of estimating the minimum amount to invest in the stock market and whether the minimum amount to invest in the share market can be determined scientifically or it must be based on discretion and judgment only.
You don’t need a lot, but a good corpus helps
Investors often assume that they need a large amount of capital to start investing in the stock market. However, that is not correct. While a decent corpus helps, you can even start to familiarize yourself with the markets by purchasing just 2-3 stocks and investing a small amount of even around Rs.25,000, to begin with. Is there any surefire way to find out the minimum amount to invest in the stock market? Let us look at some scientific approaches.
Adopt the simple 100-current age strategy
It is as old as the hills and also very common. Even your grandfather will tell you that as your age advances, you must prefer safe investments. The 100 minus your current age strategy is one of the most common strategies for new investors and it is also extremely intuitive and appeals to people of all ages and cultures. The premise of this strategy is based on the well-set view or perception that as you age your risk capacity gradually reduces. That may not be correct because as your debts get repaid and responsibilities reduce, your risk appetite could increase.
Let us understand this strategy in greater detail. As per this strategy, the percentage of the stocks you hold in your overall asset class portfolio should be equivalent to 100 minus your current age. What exactly does that mean? For example, if your current age is 40 years then your investment portfolio must have an equity exposure of 60% i.e., 100-40, which is your age. One argument is that this is just too simplistic and does not factor in other factors like risk appetite, change in status, need to create a corpus, etc.
A slightly more improved approved is the X/3 strategy
This is very popular and the SIPs that you do in equities and mutual funds are nothing but an example of the X/3 strategy although the factor in the denominator keeps changing. This strategy essentially states that you only should invest x/3 amount as a beginner. In this case, the total amount of X is your investable surplus. For example, if you intend to invest Rs.30,000, then you just invest one-third or Rs.10,000 in the stock of your choice now.
The other two tranches you spread out over some time to try and get the best price at your command. The x/3 is excellent for mitigating risks. Most of us do not realize but we end up using this strategy more often than not. It is also called a phased strategy as it spreads the investment over some time and hence also gets the benefit of a better price via what is called rupee cost averaging.
Don’t forget the 75% profit strategy approach
The 75% profit strategy is a slightly improved portfolio approach to allocation. What the approach states are that if 75% or three-fourths of your stocks in the portfolio are performing well or beating the index returns in isolation, then you can continue investing. For example, if you have invested in 12 shares and 8 of these shares are doing better than the Nifty, the strategy is working. The rule is that when something is working just don’t disrupt it and spoil the show. You can therefore consider increasing your investment also. This rule may not really apply in very small portfolios but a portfolio of 10 or more stocks can make good use of this approach and it is intuitively observed to work in practice.
How much to invest is an important question, especially the minimum amount to invest in the stock market. Resources are limited and dreams are unlimited. But the simple answer is that you can begin trading with any amount that you can spare because when you even invest Rs.1000 you are better off than the person not investing in equities at all.
Discipline required for trading
Discipline is one of the most important traits every trader needs. The market gives you infinite opportunities to trade, so you must make a rational choice. Every other second is a chance to make money but also an opportunity to make a royal mess of your trades. Hence, one golden rule is that taking more trades than you should and what you can handle is a recipe for getting distracted or prematurely exiting the trades in a state of panic. Such situations are best avoided, and that can only be done with discipline. You can cultivate and maintain this discipline with the help of a share trading app.
Risk management in online share trading
Risk management in trading is critical for averting the risk of substantial losses arising from stock market trades done on a random basis. Risk management involves the identification, evaluation, and mitigation of risks that usually arise when the market moves in the opposite direction from the expectations. That is exactly when risks and there is little you can do about it. The best you can do is to manage these risks effectively.
So, it is really important that you consciously set your expectations based on a thorough analysis of the market and after anticipating all the risks and putting value to such risks. After anticipating such risks, you can invest in the stock market weighing your anticipated risks with your anticipated gains and making a trade-off.
