Micro-investing: What is it and how can you get started?

Everyone wants to be rich by the age of 40, but no one wants to stop living between the ages of 20 and 40. With aspirations and consumption hitting all-time highs, it's no wonder then that we’ve looked and experimented with varied methods to create, build as well as sustain wealth. And while savings is an age-old concept in Indian households, investing helps to make the most of those savings.

India has the largest young population in the world. In fact, just between the ages of 18-28, India has a population of about 367 million. And while this generation is extremely tech-savvy and aware, when it comes to their finances, they may be high intent but are a little oblivious. If you ask one of them whether investing is important or not, they will almost always reply in the affirmative. But if you ask them if they do invest - that’s where the ball drops.

This stems from the fact that ‘money management’ and ‘personal finance’ conversations rarely happen in Indian homes or even in schools. So, in spite of there being many great apps, platforms, and tools that are making investing quicker, there needed to be something that; 

• Makes investing simpler, and more importantly exciting for young Indians, and
• Integrates with our lifestyles rather than demanding a change in behaviour 

This is where micro-investing fits in perfectly.  

So, what is micro-investing and what does it have to do with my spare change?

Simply put - micro-investing, as the name suggests, is the practice of investing micro amounts of money frequently rather than a large sum in one go. Round-up investing, which is the investment of spare change from online transactions, is one of the easiest ways to microinvest.

Example: Say you took a cab to your friend’s place and paid Rs 195 for it online. With micro-investing, the amount you spent automatically rounds up to the nearest 10 (or a multiple of 10, whichever you choose), which in this case is Rs 200, and invests the spare change of Rs 5 on your behalf - instantly.

And while it's a viable option for anybody looking to take those first few steps into the investment ecosystem, it's perhaps the most applicable to the younger generation, especially millennials and Gen Z - those just taking their first steps towards financial freedom. A few advantages of the concept are;

Diversification

Depending on the app you’ve chosen, your micro-investments can be put towards a few tried and tested investment instruments like gold or mutual funds. With mutual funds, the concept is to not introduce the entire universe of mutual funds, instead, depending on an investor's risk appetite present categorised buckets to choose from like; debt funds (low-risk), hybrid funds (mid-risk), and small and mid-cap funds (high-risk). Since your money is not allocated for purchasing individual stocks of a company, the risk is much less.   

Low minimum investments

As mentioned earlier, you do not need a large amount of money to start investing. With the feature of round-up investing, you can invest spare change from your online transactions. Infact features like daily deposits, even give you the freedom to invest little amounts every day working up to a larger investment amount for the month. This means that, instead of paying Rs 1500 in one go, you can deposit Rs 50 per day, which doesn’t pinch as much as shelling out Rs 1500 right after receiving your salary.  

Start earning interest immediately

Micro-investing helps in building money instantly. If you keep Rs 10 every day in a piggy bank or savings account, you are not earning any returns, or any returns are immediately nullified by rising inflation. And if you keep collecting it to invest in the future, you are missing out on the compounding interest you would’ve earned when it was sitting idle all those years.  

Fortunately, micro-investing allows you to earn interest or returns every time you add money to your account. As the famous saying goes, “Many a little makes a mickle” micro-investing makes small amounts add up toward fulfilling short-term investment goals and kicks off your ambitions of long-term wealth creation.  

Automatic investment

With micro-investing apps, you can automate your contributions. As a result, you develop the habit of saving without thinking about it. Automated micro-investment apps can benefit young investors the most by helping them build a habit of investing. In India, young earners prefer transacting digitally. Imagine you pay Rs 412 to a cab driver, Rs 333 for pizza delivery, Rs 3025 for electricity, and Rs 42 for milk in a day. With round-up investing, you invest Rs 28 without thinking about the savings.  

The right way to build long-lasting wealth is to invest continually and let your money grow. Micro-investing lets you tap the power of compounding, and to reap the benefits of compounding returns, you must focus on how long you invest instead of how much you invest. Micro-investing apps are a great way to enter into the world of investing with how much ever money you have as savings. If you contribute consistently, it adds up over time, and by increasing your contribution regularly, you can graduate to bigger investment tools and instruments that can even help you secure your retirement.

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The author is founder and CEO of micro-investing and micro-savings app Deciml

(Disclaimer: The views expressed above are the author's own and do not reflect those of DNA.)