What is Micro-investing and How Does It Work?

We live in an era where the tap of a smartphone echoes louder than the clink of coins. So it’s evident that India’s investment scenario is undergoing a quiet yet radical transformation. 

This change is driven by a new breed of investors: millennials, for whom investing is less about hefty sums and more about the agility of micro-investing. Data backs this up, showing millennials are 43% more likely to invest using their mobile devices, through online trading apps.

This trend is part of a larger shift in India’s investment landscape, a sector poised to see the micro-investing platform market reach $3,187.2 million by 2032. 

There is still immense untapped potential within the Indian economy. Traditional investment methods, such as direct stock buying or mutual funds with high minimums, often fail to cater to those with limited resources or investment knowledge.

Here’s why micro-investing is the new buzzword: 

• Investment apps on smartphones have turned investing into an effortless activity. 
• Micro-investing apps are welcoming for all, especially those who may not have substantial funds to start.
• These platforms democratise access to higher-priced stocks by allowing investment in fractional shares; thereby making it possible for more people to invest in the stock market. 

This article explores the idea of micro-investing. We will see how it is influencing investing in India and why more and more investors have started opting for this method.

What is Micro-investing and How Does It Work?

Micro-investing is an investment approach meant for the modern era. It is especially suited for those looking to start with small amounts. 

This concept revolves around investing small sums of money regularly, generally through an online platform or app. These platforms usually charge minimal brokerage or subscription fees and this makes it an accessible option for many.

Micro-investing can include investing in ETFs (Exchange-Traded Funds) or fractional shares and it utilises strategies like dollar-cost averaging. The key advantage of dollar-cost averaging is that it reduces the impact of market volatility on your investment. As you’re investing regularly, you don’t need to time the market!

This approach to investing gained traction after the Global Financial Crisis in 2008, as people were looking for more transparent and manageable investment methods.

Let’s demonstrate micro-investing with an example:

Consider a scenario where you are investing ₹100 every week over a period of 5 years. This could just be any spare change that’s left over from your weekly budget. This investment plan offers an expected annual return rate of 5%, applied weekly to your growing balance.

Here’s how it works: Each week, your contribution of ₹100 is added to your existing balance, and the entire amount earns interest at the weekly equivalent of the annual rate. 

By the end of the five-year period, your investment amount will grow to about ₹29,523! 

This example shows that even if you start off with a small amount, consistency and micro-investing strategies can help you save quite an amount over time.

Micro-Investing vs Traditional Investing

Micro-investing differs significantly from traditional investing methods in several key aspects. While traditional investing often requires a substantial initial investment and a more hands-on approach, micro-investing allows individuals to start with smaller amounts and often relies on automated processes. 

This has democratised investment opportunities and made them more accessible to a broader audience. Here’s a comparative overview:

How to Start Micro-investing in India

Micro-investing in India is gaining momentum. Predictions show that the South Asia Pacific region, with India at the forefront, is on track for significant expansion, with a CAGR of 22.5%.

This uptrend is backed by a growing preference for smaller investment amounts. Apart from that, there’s also a rise in the number of users of micro-investing platforms, in both emerging and advanced countries in the region.

To put this in perspective for you, in 2020-2021 alone, around 81 lakh investor accounts were added in the country!

To start micro-investing, you should first choose a reliable online trading app that allows you to invest small amounts. The key is to focus on diversification. You must spread the investments across various assets to mitigate risks. 

Digital advancements, like the Digital India Initiatives and UPI implementation, have streamlined the investing process. This has also allowed Indian investors to engage in fractional investing.   

Currently, micro-investing platforms account for about 20.9% of the total online investment market sales. This share is only expected to grow in future!

Final Thoughts 

Thanks to the evolving digital financial landscape, starting your micro-investing strategies has become a breeze! For investors, particularly those starting with smaller sums, the current environment offers a supportive landscape for growth and diversification. 

Utilising user-friendly platforms like the Appreciate app can be a strategic move towards building a well-rounded investment portfolio. As the sage advice of Warren Buffet goes, “Don’t put all eggs in one basket,” is especially pertinent in micro-investing. Embracing this approach with an emphasis on diversification is essential for smart and effective investment planning.

Author Bio : Yogesh is a Co-Founder at Appreciate, a fintech platform helping Indians achieve their financial goals through globally diversified one-click investing.