Maximum Amount To Invest In Mutual Funds: Investing can sometimes be complicated and overwhelming. While there are several different investment options such as stocks, bonds, and real estate, investment should be done according to the financial goal and risk appetite.
Therefore, investing journey differs from individual to individual. If you invest on your own without seeking any help, you can decide on your investments, monitor performance, and can also do some modifications to the investment strategy over time.
Investing journey gets started with a plan and a time frame. Investors are required to be aware of their investment time horizon and the returns they have in mind.
Putting the structure in place to achieve desired returns is the next step. Most investors focus on wealth creation and decide to make investments in mutual funds rather than individual stocks.
Mutual fund refers to the financial instrument that pools the money of different individuals and then makes investments in different financial securities such as stocks, bonds, etc.
Even though investing in mutual funds means indirectly investing in the stock market, mutual funds offer the benefits of diversification, professional management of the money, etc.
The amount of investment in the mutual fund should be decided on the basis of long-term financial goals, time horizon, and risk appetite.
Do you know what is the maximum amount to invest in mutual funds? This will be explained later in this article with some other advantages of choosing mutual funds over direct equity. Read on!
Approach To Buying Mutual Funds
Before understanding the maximum amount to invest in mutual funds, it is of utmost importance to understand various approaches that investors should consider while investing in mutual funds.
Firstly, be clear on one aspect. Do you want to beat the market or do you want to mimic it? This is also a fairly easy choice as one strategy costs more than the other.
Actively managed funds are those funds that are managed by professionals who are quite active in their investing approach. Such managers tend to work in a dynamic environment as they focus on beating the market returns.
While some managers can achieve this target in the short run, it is quite difficult to exceed the market returns in the long run and on a regular basis.
On the other hand, passive investing is kind of a hands-off approach. In this, the fund manager does not enter positions in an active manner and he/she makes sure that the performance mimics the performance of a benchmark index.
Passive investing involves lower fees in comparison to active investing. The next step is to figure out the purpose of making an investment.
Are you investing for tax-saving purposes or to meet some long-term financial goal? Accordingly, investments should be made. If the purpose is to save tax, investors should go for ELSS schemes.
However, it is important to note that such schemes come with a lock-in of a minimum of 3 years. Therefore, it will not be suitable for investors who are focused on short-term investing.
Mutual funds come in several varied forms such as debt mutual funds, balanced funds, etc. If the focus is on liquidity and an investor has a lower risk appetite, he/she should go for debt mutual funds.
After determining the mutual funds you plan to buy, it is very important to think about managing your investment. Initially, try rebalancing your portfolio once a year.
The purpose should be to keep it in line with the diversification plan. For example, if one slice of the investments saw great gains and now forms a bigger share of the pie, you should consider selling off some of the gains and making investments in another slice.
This should help in regaining the balance. Sticking to the plan will also ensure that you don’t chase the performance.
However, this does not mean that you hold onto one mutual fund for a very long time, but chasing performance often makes the situation worse.
The Maximum Amount To Invest In Mutual Funds
Since mutual funds have become quite a popular investment avenue among different types of investors, most investors have made solid gains.
More often than not, they tend to think what can be the maximum amount to invest in mutual funds? Most of the time, no upper limit is prescribed.
However, while making an investment in ELSS (tax saving) funds, it is important to remember that tax deductions under Section 80C are available only up to an investment of INR150,000 per annum. The investment amount can go above that figure.
Another important thing is that cash investments up to INR50,000 per investor, per mutual fund, and per financial year are allowed in mutual funds. However, any sort of repayment will be made only through the bank channel.
The minimum investment amount in the mutual fund varies from fund to fund. However, there are some practices that are followed by the funds.
If there is a new fund offer (NFO), the AMC tends to fix the minimum investment amount at INR5,000 per application. If an investor plans to make an investment on a lump sum basis, the minimum investment tends to be INR5,000 most of the time.
However, this amount is only required for the first investment. Subsequent investments can be made with INR1,000 also. If an investor plans to go ahead with the SIP, the minimum investment amount is INR500 per SIP deduction.
For example, if you plan to do a monthly SIP, you are free to apply for a monthly deduction of INR500.
To Sum Up
Lump-sum investments in a mutual fund are done by people who get a bonus or a significant inflow of funds. Most corporate investments are in this form.
Here, there is no maximum amount on investment. However, at the time of investing lump-sum, timing has a critical role to play. The most popular method among retail investors is making investments through a systematic investment plan.
The SIP approach syncs with the income flow also. It helps in making investments in a disciplined manner and provides an added advantage of rupee cost averaging.
Thus, it helps in reducing the cost over time. Most investors consider this as the best approach for goals such as retirement, education planning, etc.
While there is no upper limit on investment in mutual funds, it is advisable that investors should invest according to their risk appetite and financial obligations.
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