In recent years, the number of new investors in the stock market has soared. Many factors, including user-friendly trading apps, financial inclusion, and relaxed KYC requirements, led to this. However, many people continue to avoid D-Street because they believe investing in stocks requires a hefty sum. But is this true? Let us find out in this article.
What is the Minimum Capital Required for Stock Investment?
There are no minimum capital requirements to invest in the share market. It depends on how much you want to invest. Whether you have Rs 1 or Rs 100,000, you can start investing. For example, suppose you have Rs 500, and the stock you want to invest in costs Rs 20 per share. You will be allotted 25 shares. If the share price rises to Rs 30 per share, your overall investment will be Rs 750.
Remember, the minimum amount should be based on your risk appetite and existing obligations because the stock market does not offer guaranteed returns.
When deciding on an investment amount, also watch the brokerage fee closely. Let’s say you wish to invest Rs 500, and the brokerage fee is Rs 50. In this case, the actual capital involved in buying a stock is Rs 450.
How to Allocate Your Investment Amount?
Although there is no minimum investment requirement, you must allocate funds properly to maximise profits. Here’s how to proceed.
1. “100 Minus Age” Rule
The idea behind this rule is to subtract your age from 100, and the result is the percentage of your investment that you might consider keeping in stocks.
For example, if you are 30 years old, you should keep 70% (100 – 30) of your investments in stocks. This is based on the assumption that the younger you are, the more risk you can manage to take, as you have a longer time to recover from potential losses.
Conversely, as you age, you should gradually move your investments into more conservative opportunities like bonds, which are less volatile than stocks.
2. X/3 Strategy
This strategy divides your investment capital into three parts, or ‘thirds’, to manage risk and maximize returns. Here’s how you might employ this strategy:
You start with a capital of Rs 3,00,000. Instead of investing the entire amount in one go, you divide it into three portions of Rs 1,00,000 each. You invest the first third in a thoroughly researched stock with strong growth potential. This could be a company with solid fundamentals, a good market position, and a track record of performance.
As the market fluctuates and stock price increases by a certain percentage, say 20%, you invest the second third. This helps you average the cost of your investment while still leaving room to capitalize on further growth.
Conclusion
Stock investments are cost-effective. You can begin with just Rs 1 after accounting for the brokerage fee. However, rather than investing blindly, it is advisable to use either the “100 minus age” or “X/3” approach. Happy Investing!
