Minimum Amount to Invest in Share Market

What is the minimum amount to invest in share market? This was the question asked to me by my friend.

My friend wanted to start investing in share market. He was little wary as he was not sure of the rules.

Beginning of investment in share market is never easy for common men.

The terminologies of shares market are alien and unknown to us.

We are caught defensive and fearful in necessary stock calculations.

Share market is like a vast jungle which is fun exploring, but is risks too. Investment start-up in share market must be done with caution.

Nagging questions comes to mind from the very beginning. How much to invest ? Where to invest? Which stocks are good? etc.

There are any rules which limit the minimum amount to invest in share market?

No, in share market there is nothing called minimum or maximum limit. One can buy only one share costing may be $1.

One can also buy all shares outstanding of a company costing may be $100 million. Of course there are regulation when stocks buying is in large numbers.

All buying limits are possible provided rules are followed.

From market side there is nothing like minimum amount to invest in share market. But from investors side, one must keep a watch on the trading expenses.

Frequent trading calls for high cost.

Purchase of stocks in small amounts may also lead of high cost.

Best stock trading practice (to minimize cost) is to select a online stock broker charging minimum brokerage charges.

Brokerage fee & minimum amount to invest in share market

Before investing in stocks, one must have a trading account.

Selection of a online broker can be done easily these days. There are a multitude brokers available, and majority offers reasonable service.

One element of distinction between brokers is their brokerage fees. Brokerage is charged with each trading we make using their trading account.

Opening a trading account can be done free of cost. Banks would like you to to open trading account free and then earn brokerage free for every transaction.

The brokerage fees is a very important factor in selection of a stock broker.

For every buy-sell order placed by the investors one needs to pay a specific brokerage fees to the broker . The level of brokerage fees varies from broker to broker.

The amount of brokerage one pays directly affect the profit particularly when one is practicing day trading.

Whether one is a small trader or trade in big volumes, brokerage fees can make a good difference to net profit. The fees that one pays per trading has a minimum level fixed.

Even if you are investing only $1, but a minimum brokerage per trade will be applicable.

So in order to maintain a healthy profits there is a minimum investment in share market that must be known to all traders.

Let us see an example:

Suppose one has funds of $340 to invest in shares. He bought shares of company which was trading at $34/share. This way he bought 10 number of these shares (10@$34=$340). After share purchase, suppose the share price goes up to $37.4. At this price level, on redeeming, he will earned $3.4 profit per share. This is a gain of approx. 10% gross. Suppose the fee that was paid is $10. With this cash-out of brokerage fees, lets see how the profitability changes:

Example…

Number of shares = 10 Nos
Market Price of Share = $34.0
Value invested = $340.0

Selling Price of Share = Rs 37.4
Total Selling Value = Rs 374

Gain = $34
Brokerage Paid during Purchase = $10 (minimum payment)
Brokerage Paid during selling = $10 (minimum payment)
Net Gain = $14
Net Gain % = Rs 14/ 340x 100 = 4.12%

So you can see that though that the market price of share has increased by 10% (Rs 37.4 to Rs 34.0), but due to high brokerage fee (minimum payment) the net gain is only limited to 4.12%.

The lower will be the invested value, the more severe will be the effect of brokerage fees.

This is one reason why traders follows a rule of thumb in fixing a minimum investment in share market.

Minimum Amount to Invest in Share Market is Rs 3,500?

To Conclude

Rs.1,002.00 used to buy stocks of Tata Steel. Brokerage Paid ~ Rs.19. Extra cost paid for brokerage+Tax etc is 2.21%

Rs.1,110.40 used to buy stocks of DLF Ltd. Brokerage Paid ~ Rs.19. Extra cost paid for brokerage+Tax etc is 2.00%
(Brokerage Constant, but with increase of invested amount extra cost % reduces)

Rs.1,510.20 used to buy stocks of Unitec. Brokerage Paid ~ Rs.19. Extra cost paid for brokerage+Tax etc is 1.54%
(Brokerage Constant, but with increase of invested amount extra cost % reduces)

Rs.1,608.75 used to buy stocks of McMillan. Brokerage Paid ~ Rs.19. Extra cost paid for brokerage+Tax etc is 1.44%
(Brokerage Constant, but with increase of invested amount extra cost % reduces)

Rs.3,012.80 used to buy stocks of IFCI. Brokerage Paid ~ Rs.19. Extra cost paid for brokerage+Tax etc is 0.84%
(Brokerage Constant, but with increase of invested amount extra cost % reduces)

Rs.3,570.00 used to buy stocks of South Indian Bank. Brokerage Paid ~ Rs.19. Extra cost paid for brokerage+Tax etc is 0.73%
(Brokerage Constant, but with increase of invested amount extra cost % reduces)

Rs.4,962.60 used to buy stocks of Ambuja Cement. Brokerage Paid ~ Rs.27.54. Extra cost paid for brokerage+Tax etc is 0.74%
(Brokerage Increases. Increase of invested amount beyond Rs 3500 also increases the extra cost %)