What is the minimum money I need to start stock trading in India?
This is one of the most asked question by the beginners when they start investing in stock market. Different newbie investors in different formats ask the same question. It goes like this:
What should be the ideal amount to start investing in the Stock Market?
What is the minimum money I need to start stock trading in India?
I want to invest in stock market but I do not know how much to invest?
What should be the minimum amount can I invest in stock market for long term?
I want to invest in stock market, but I don’t have much money. Is there any any minimum number of stocks that I must buy?
The general answer for all these questions is ‘there is no minimum money required to start investing in stock market in India’.
You can buy stocks for even less that Rs 10 also if you find an interesting one (Indian stock exchanges BSE & NSE has a number of stocks pricing less than even Rs 10). You don’t need to have thousands or lakhs to start trading in India. Any amount, from which you can buy a stock, is decent enough to start trading, no minimum money to start investing in stock market required.
Here I am presenting a list of 10 big companies whose stock prices are less than Rs 100.
|S.No||Company||Price (In Rs)|
|7||National HyroElectric Power Corporation (NHPC)||32.25|
|9||SAIL (Steel Authority India Ltd)||63.85|
You can easily invest in these companies. Funny, the stock prices of these companies are even less than the Ola or Uber ride fare that you take in your hometown. Still people speculate that buying stocks are expensive. In addition, you can further find a list of large number of stocks, who range from RS 1 to 100 here: http://money.rediff.com/companies/price-sorted/10-100
So, the answer for the question of ‘what is the minimum money I need to start stock trading in India?’ definitely is that there is no minimum money limit required for starting stock trading in India.
However, is this all that you wanted to know form the topic of the post? No, I don’t think so.
The next big question should be then ‘How much should I invest in the stock initially if there is no minimum money I need to start stock trading?’.
The answer is, if you are new to the market and in the learning phase, it is always recommended to start low. Invest as low as possible and focus on the learning. Anything between Rs 100- Rs 1000 will be good. You really don’t want to lose thousand of your money in the starting and they promising angrily to yourself that you won’t ever return to the market.
But, this doesn’t mean that you should take this limit as fixed rule for initial investing. Suppose, if you found a stock, which is bit costlier, say Rs 1400. But you have done your homework, gone through the stock fundamentals, and are confident that the stock will rise in the future and give you good return and profits, then, you should go for it. The starting investment limit shouldn’t be a factor there.
But as a thumb rule for the beginners, Anything between Rs 100- Rs 1000 can be used as the first stock market investment.
Want to learn more? Here is a best selling book on stock market which I highly recommend to read: Beating the street by Peter Lynch
The great advantage of this amount is that you won’t lose too much if the things doesn’t work out as you imagined. Maybe, you misinterpreted the stock or did the fundamental study wrong, or the stock price fell due to some bad fortune. Still, you won’t be affected too much financially by the loss. As the saying goes:
Failures are the best teachers.
From your first investment, you need to learn a lot. Remember, it’s not always about winning. You should always remember is famous quote ‘Sometimes you win, & sometimes you learn’.
Further, from your first investment, you will learn more important things. You will learn what things to do and moreover you will learn what things not to do. In addition, losing a small money won’t affect your morale and you can come back in the game again, and next time even more prepared and informed.
On the other hand, If you won, the stock price rose, then congratulations. You have done a great job!
It gives you a great lesson when your first investment is a failure, but it gives a tremendous joy when your first stock is a win. It’s a life time memory.
For my case, I bought three stocks during my first investment. Out of three, two performed well and the third under performed for 3 months. Although the overall portfolio was in profit, still the return was not good as the total was averaging out. Therefore, I sold the third stock after the third month.
For beginner investors, I will suggest to follow their stock portfolio for first 3-5 months before investing heavily on other stocks. The initial big profits on your stock might give you a great confidence to keep buying additional stocks. But You shouldn’t be greedy at that moment. You must remember that for beginners, it’s more important to learn how to do value investing, that to earn money. And once you have learn the basic, then the game is yours.
I also recommend you to check out these posts on stock investing:
100 minus your age rule
This is a very famous rule about how much you should invest in stock market and widely known as ‘100 minus your age rule’. The rule is based on the principle of gradually reducing your risk as you get older. The rules goes like this. ‘The percentage of the stock holding in your net worth should be equal to 100 minus your age.’
For example, Let’s say your age is 20 and your total savings till date is Rs 1000. Then, the amount that you should invest in the stock market should be (100-20) = 80% of your total net worth. That is, you should invest Rs 800 in stock market, if you are of age 20 from a total saving of Rs 1000.
You can read the complete post about ‘100 minus your age rule’ here: http://www.investopedia.com/articles/investing/062714/100-minus-your-age-outdated.asp
The X/3 Rule:
This is another popular rule among beginners to reduce the risk while investing. The rule says to invest only x/3 amount in the beginning, if x is the total amount you intended to invest in a stock. Then, after few days you can invest your next x/3 amount to the stock if its doing good. And finally the last x/3 again after few days.
For example, if you intend to invest Rs 10,000 in a stock, don’t buy from the whole amount at one go. Invest only 10,000/3= Rs 3,333 initially. If you find your stock growing, then you can add Rs 3,333 in the next round of investment and the last Rs 3,334 in the round after that.
The rule greatly minimizes the risk.
The only problem with this rule it that it reduces the focused amount, so the final profit might be little less that expected if the whole amount was invested the same time. Still it’s a great rule for a stock market beginners and helped a lots of newbie to reduce their risk and losses significantly.
There is one more rule called the ‘75% profit rule’. However, it is more like a hypothesis that a rule. It states that if 75% stocks in your portfolio is doing good, then you can invest further. For example, if you have bought 4 stocks and 3 of them are doing good, then it means that your strategy is working. You can increase your investment. The chances of all the stocks in your portfolio(4/4) working great is very limited. Even Warren Buffett, the greatest investor of all time, has some stocks in the portfolio which gave him negative returns.
So, if 75% of your stocks are doing great, it means that your strategy is good and it’s not the luck that is driving your portfolio (If you have only one stock in your portfolio and its growing fast, there might be a change of luck factor also, but if 3 out of 4 stocks in your portfolio is growing, its more because you did your homework correctly).
So, there are the tips and tricks for the beginners to invest in the stock market. Also remember the answer to the question ‘what is the minimum money I need to start stock trading?’ is that there is no minimum money I need to start stock trading. That is no lower limit for that minimum money I need to start stock trading.
One more thing I would like to add in this post. There are also some additional charges while buying a stock online and the buyer has to pay for it. It is generally less than 1% of the amount of the transaction. The additional charges are brokerage charge, Service charge, STT etc. Therefore, you also have to keep these in mind during buying a stock. Although, they are very small amount, but still they will add up in the final amount of the stock that you bought.
Hence, for all those who are asking ‘What is the minimum money I need to start stock trading in India?’, the answer is that there isn’t a minimum money I need to start trading in India. Anything that suits you is good enough for the market. Any money at which you can buy a stock, works fine for entering the market. Any amount that you are ready to invest, is great to start stock trading in India.
Further, I hope my post ‘What is the minimum money I need to start stock trading in India’ is useful for the readers. If you need any further clarification, or have any doubts, feel free to comment below. I will be happy to help you out.
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