Today, growing wealth is among the top priorities of people. Yet only 3% of the Indian population actively invests in the stock market. Surprisingly, this is when investment participation in India is gaining traction.
Most people are reluctant to start investing, believing they don’t have enough money to begin. This is a common misconception that plagues the lower income class from achieving financial freedom.
Even if you start and continue with smaller budgets, the compounding effect works in your favour to build a substantial corpus over time.
In this article, we explore how you can start investing with a limited budget.
How to Start Investing on a Budget?
1. Identify and Set Your Financial Goals
The first step towards investing is to identify and set your financial goals. Most people aim to have a lump-sum corpus for their retirement or saving downpayment for a house, car, or child’s education.
You should know your financial goals and what you want to achieve in the coming 5, 10, or 30 years. Once you have set your financial goals, you can utilise various planning calculators to get a fair idea.
2. Assess Your Risk Tolerance
Once you gain clarity on your financial goals, another important aspect is to choose what kind of stocks you want to invest in. Try to understand which risk bucket you identify with the most.
It can be high-risk, medium-to-high, medium-risk, medium-to-low, and, finally, low-risk. Smallcase as an investment category can be a great option when you’re starting.
3. Fix Your Investment Budget
Most people who fail to start investing often postpone it as they don’t have enough money left every month after their expenses and obligations.
This warrants you to start budgeting and allocating a small portion for saving and investing.
For better financial health and wealth management, use popular budgeting techniques such as the 50/30/20 rule, where 50% of your income will be spent on needs, 30% on wants, and 20% on your savings and investments.
4. Start Small and Plan for Consistency
Investment is not a sprint but a marathon! It requires you to start and be patient with your path to create wealth.
Start slow and small with a focus on building consistency. Over time, as your savings increase, your comprehension expands, and you will be able to create a larger and more diverse portfolio.
5. Automate Your Investment
Once you’ve started investing, even with smaller amounts and striving for consistency, the best you can do is automate the process.
The less friction there will be, the higher the chances of building a consistent habit of investment. Use auto-deduction options and leverage investment services to automate the procedure.
Pro Tips to Start Budget Investing
Here are some additional expert tips that will help you get started as well as remain on the right track:
1. Beware of Penny Stocks
Penny stocks are shares available at Rs. 10 or less. It’s not that they are bad, but in most cases, these tempting low-priced stocks signify that there are no buyers for them in the market due to their poor demand.
It could be due to the company’s financial crisis, as it could be on the verge of collapse.
Often, investors with restricted budgets tend to turn to penny stocks as they appear to be the best option, provided the limited resources.
We highly suggest choosing a smallcase portfolio product such as PINC Momentum Fundamental, offering stocks where visibility in earnings continues for the next 4 to 6 quarters.
2. Avoid Emotion-Based Investment Decision
Many investors tend to suffer losses because they allow their emotions to dictate their investment decisions, especially when buying and selling.
For example, with small and mid-cap stocks crashing and foreign investors selling Indian equities, many investors start to panic, selling their good quality stocks at lower prices.
Investors with strong investment fundamentals, along with assistance from industry expertise in wealth management, remain stoic even in economic storms and make decisions analytically.
Also Read: 3 Advanced Investment Tips for High Net Worth Individuals
3. Focus on Portfolio Diversification
Investors often mistake diversification to be a seasoned or experienced player’s game. Also, for a limited budget or little money, diversification is mostly overlooked.
Irrespective of your budget, diversifying your portfolio mitigates your risk and prevents you from over-exposing the portfolio to just one particular market capitalisation or sector.
4. Prioritise Saving Money
Saving money seems to be an obvious challenge, but it is instrumental, especially when you want to start investing with a limited budget.
It will help you to start effortlessly. For that, you need to create a budget for your monthly expenses and include a fixed amount to save.
Conclusion
Even though India’s stock market participation experienced impressive growth, most people are still reluctant to begin.
This is usually due to a lack of financial literacy, a shortage of budget allocation, and intimidation towards the stock market.
You need proper planning, budgeting, risk assessment, and automation to start an investment with little money. Leveraging wealth management services and their expertise to achieve your financial goals is essential.
PINC Wealth offers research-backed, expert-driven, well-balanced, curated, small-case, structured portfolios that achieve wealth building.