How to Invest in Stocks with a Small Budget?

Investing in stocks is a powerful way to build wealth in the long term. However, many people believe that they need a specific amount of money in order to start investing. However, it's a complete myth. With the advancement of technology and the availability of various investment platforms, it is now possible to begin investing in stocks with a budget as low as ₹5000, that too at the comfort of your home.

In this blog, we'll be covering everything you need to know about investing with a small budget. So, let’s begin.
 

Understanding the Basics

Understanding theory is important before executing. In case of investments as well, you must know what you're getting into. When you buy a stock, you are purchasing a share of ownership in a company. The expectation is that as the company grows and becomes more profitable, the value of your shares will increase, allowing you to sell them for a profit. 

Hence, you must be aware of the basic key terms like dividends, capital gains, etc. This helps you make informed decisions, especially if you are investing by yourself. 
 

Set a Budget

Even if we're talking about investing with a small amount of funds in hand, you still need to understand that setting a budget is important. This helps you to organise your finances and you can use your active income to invest and manage day-to-day activities. 

Start budgeting practice by determining your income and all essential expenses like EMIs, rent, and utilities. This way, you can save for investments, while providing for leisure and lifestyle. And, this can also help you to cut down on unnecessary expenses. There are many budgeting techniques to guide you. You can start with the most popular one- the 50/20/30 rule. In this method, you spend 50% of your income on needs, 30% on wants, and 20% on savings and investments.
 

Choose the Right Broker

It can be a bit overwhelming to find a good broker among so many options. You need to look for a broker that suits your investing style and, most importantly, your budget. Here is checklist you should follow when looking for the right broker when you've a small budget:

• Low Brokerage Charges: Opt for discount brokers with minimal fees.
• No Hidden Costs: Check for annual maintenance and transaction charges.
• User-Friendly Platform: Ensure the app/website is simple and intuitive.
• Research Tools: Look for brokers offering free stock analysis tools.
• Reliable Support: Prioritize brokers with good customer service.
• Regulation Compliance: Verify the broker is SEBI-registered.
   

Open a Demat Account

Opening a Demat account is your gateway to investing. Having a Demat account enables you to invest safely, quickly, and seamlessly. Opening a Demat account is pretty straightforward. Here's how you can do it: 

• Choose a Depository Participant (DP): Select a registered DP (For example, a bank or a brokerage)
• Fill Application Form: Provide personal, bank, and PAN card details
• Submit KYC Documents: Upload identity and address proofs (Aadhar, PAN, etc.) 
• Verify Details: Complete in-person or video KYC
• Sign Agreement: Accept terms and conditions
• Receive Credentials: Get your account number and login details
   

Start small But Start Now

There's no right time to start investing. Even if you can invest only a small amount, you should start investing now. In fact, starting early has an advantage. Investing now, even with a small budget, is a smart decision because it leverages the power of compounding, where your money grows exponentially over time. 

However, it's a common misconception that you've to settle for small companies if you're on a shoestring budget. You absolutely don't have to do that. Even with a small budget, you can get a piece of large-cap companies. 

With Finology Ticker's Screener tool, you can easily find companies to invest in that are selling stocks within your budget range. 

To access this tool, follow these steps:

• Log in to ticker.finology.in 
• Visit the Screener tab
• Select the Go to Screener option
• Let’s say you've got a budget of ₹500. So, In the “Search for Ratios and create a Screener” option, enter the inputs- Current Price <500
• You’ll get the list of companies that are selling their stocks in ₹500 or less.

Even a giant company like ITC would be available on this list. So, it is quite evident that you can start even with a small budget. 
 

Choose Good Stocks

When you start investing as a beginner, it might be very tempting to go for popular and trending stocks. Especially with the convenience of social media, you will always have the so-called “get-rich-quick” opportunities at your disposal.

But it is important to note that these tempting opportunities are more often than not– scams. Either these are used by operators to pump and dump shares or are mostly cyclical and short-term.

However, if you are serious about building wealth, you need to invest in stocks that are expected to remain stable over the long term. With the same objective in mind, we have built Finology 30, our flagship basket of 30 good stocks for the long term.

If you wish to invest in stocks for the long term, you can try out Finology 30.
 

Consistency is the Key

Even if you're starting with a small budget, you need to invest regularly and consistently in order to build long-term wealth. Even investing ₹500 or ₹1000 per month can yield significant returns over time through the power of compounding.
Ultimately, consistency builds financial discipline and helps you to maximise your gains in the long term.
 

Diversify our Portfolio

Spreading your investments across different asset classes can reduce risk. Consider a mixture of other investment options like Mutual Funds, Systematic Investment Plans (SIPs), Exchange Traded Funds (ETFs), bonds, digital gold, real-estate, along with stocks. However, the asset allocation shall depend on your goals and risk profile too.

Also, consider diversifying your stock investments by including various sectors like technology, healthcare, consumer goods, etc. 
 

Increase Contributions Over Time

As your income increases, it's important to also increase your investments. This strategy will help you ensure that your portfolio achieves returns that surpass inflation, allowing you to generate greater returns. For example, if you invest ₹1000 every month, you could accumulate ₹36 lakh over a period of time. However, if you increase your investment by just 10% each year, your total returns could rise to approximately ₹88.34 lakh over the same period of time.
 

Conclusion

Starting to invest in stocks with a small budget is not only possible but also an excellent way to build wealth over time. By understanding the basics, choosing the right investment style, and staying informed, you can successfully navigate the stock market even with limited resources. 

Remember, patience and discipline are the key principles of successful investing. After a certain point of time, your small contributions can grow into substantial wealth through the power of compounding returns.

For more tips on investing in stocks, read about the Key Factors Before Investing in Stocks