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How To Invest Low Sums Of Money On a Monthly Basis In India?

by Tavaga Invest

By: Tavaga Research

Most people who are just entering the workforce, or are students tend to have low ticket sizes when it comes to investing. In India saving is a huge part of the culture, everyone wants to save for a house, their children’s education, their marriage, jewellery, etc. A lot of people want to invest this money in options outside savings deposits, fixed deposits, or post office; but do not know how to. We have a lot of options to do this in financial assets such as stocks, ETF (Exchange Traded Funds), mutual funds, bonds, etc.

Recently the answer to this question by most would be to start a SIP (Systematic Investment Plan) worth the amount per month with a specific mutual fund. The “Mutual Fund Sahi Hai” campaign has aroused a movement of people just blindly investing in well-known AMCs Mutual Fund SIP such as HDFC, Axis, Mirae Asset, etc.

Mutual funds are usually preferred because you can diversify, as one unit of a mutual fund gives you diversification in multiple stocks. However, with this diversification there comes the problem of choosing which mutual fund, not all of them perform well no matter which name they come under. Every few years one must check and change investment based on the performance of the fund manager they are investing in, after all, no one manager can constantly beat the market.

Additionally, what would not be brought to your notice often is the fact that there are usually two kinds of hidden expenses present when a consumer purchases a “Regular” plan of a mutual fund. These are:

Your investment returns:

Direct Mutual Fund vs Regular Mutual Fund

Direct Mutual Fund VS Regular Mutual Funds (post commissions)

But if one is looking to diversify without undertaking the risk of choosing the wrong mutual fund and overcome these costs that are associated with Mutual Funds you should look at ETF(Exchange Traded Funds). These work similar to mutual funds in the sense that they shield an investor from the risk of holding an individual stock – due to the fact that they offer the advantage of diversification into multiple securities, just as a mutual fund does. ETFs are quasi-stocks that track a market index. Example: A Nifty 50 ETF(Exchange Traded Funds)  will give you returns at par with the Nifty 50, this way you avoid the stress of choosing the correct mutual fund and still get market returns.

Nifty Bees v/s Nifty 50 Index

Source: Google Finance | Data Updated as of 15th July 2020

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Also, ETF(Exchange Traded Funds)  are also considered to be a lot more flexible in nature as they can be bought and sold freely at any time during trading hours on a stock exchange (unlike open-ended mutual funds which cannot be traded over an exchange).

Another option for someone looking for a safe return without risk is to use fixed income instruments such a recurring deposit. You can invest a fixed amount of money every month just like a SIP and get a fixed return. This is the least risky option and can be used by people who are okay with the fixed return rate. It may not be the most beneficial, return wise,  in the long term with inflation but it is safer than other financial instruments. 

If someone is aware of the financial markets and knows how to pick stocks or understands the way companies work, they should look into investing the small amounts directly on stocks of such companies. Large-cap companies usually have expensive shares, with one sharing costing more than Rs. 1000 often; but mid-cap and small-cap companies tend to have shares priced in 100s and can easily be used for investment of small amounts. One can look at their budget and their market knowledge to use this as an investment strategy. Otherwise, ETFs (Exchange Traded Funds)  are a good option for people looking for diversification and having low knowledge of the market.

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