An ideal investment amount is one that is appropriate to achieve a specific financial goal. The same can be computed by considering the target amount required, time available to achieve the same and estimated rate of return on the investment.
Nirav Karkera, Head – Research, Fisdom says, “While the same can be computed using a calculator or an application like excel or spreadsheets, there are several websites offering such tools for free use. In the context of the equation, it is important to understand that the rate of return is simply an estimate and can vary meaningfully over the period, especially for capital-market linked products like mutual funds.”
In line, experts say it is recommended to invest an amount slightly higher than the derived figure to provide for any shortfalls that could emanate due to unforeseen volatility. Trimming expected returns to a conservative estimate while doing the math should help as well.
Often, “it happens so that, the ideal amount exceeds what the investor can set aside for investments. Instead of deferring the entire investment exercise altogether, it is highly advisable to go ahead and invest the maximum feasible at that point in time.”
He further adds, “This must be done while being cognizant of the inadequacy and a commitment to make good for the capital appreciation foregone by adding incremental investments as and when possible.”
For an investor who is yet to define a financial goal, industry experts say it is best to go ahead and invest the maximum amount they can while maintaining a prudent lifestyle. For investors running an intensely tight budget with virtually no provision for investments, it is recommended to at least commit to investing the minimum amount accepted by a mutual fund.
In such a situation, Karkera says to commit to a monthly SIP for the sake of investing discipline while aspiring to top it up whenever feasible. Currently, many promising mutual funds accept a monthly SIP as low as Rs 500. There are a few that accept lower, however experts say, it is pragmatic to not approach a threshold below Rs 500.
“An investor must choose an amount that is the highest and most feasible of the options: ideal amount for a financial goal, maximum investible or minimum acceptable by mutual funds,” adds Karkera.