Micro Investing – Concept, Significance, Platforms, Reasons to Invest, Perks, Demerits & more

Learn everything about Micro Investing here. We wish to provide you with all the related details, so you can get accustomed with the concept and make the most out of it.

Lets get Started.

What is Micro Investing?

As the name suggests “micro-investing” means investing in smaller amounts by buying only fractions of shares.

A micro investing platform is an application that gives the user the freedom to save small amounts of money.

The advantage of the micro-investing platform is that it removes the conventional hurdles of investing such as brokers to motivate people to regularly invest even if the amount is small.

Understanding the Concept of Micro Investing

The equivalent of saving a rupee in a jar from the purchases and then later on when the jar is full, taking it to the bank is the new digital age saving scheme of micro-investing.

The way micro-investing works is that the user will create an account.

They can do so in any of the micro-investing platforms. Now, they will receive the debit card with that particular account.

Whenever the user makes a purchase, the platform then rounds the total to the nearest rupee and the difference will be then deposited into an investment account.

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How does a Micro Investing work?

Micro investing services are provided by many apps, but each app works in a different way. However, these apps work in the same two ways.

Some apps allow the user to make a fractional investment, while other apps require the user to link their debit card number or bank account with them.

The way fractional stocks work is stock markets does not allow fractional investing.

So, these micro-investing companies purchase an entire share from the market and then divide the share into fragments amongst their users.

With the money saved by the users, if it is not possible to buy an entire share, then they buy a fraction of the share with the amount they can afford.

The other apps link the debit card or a bank account with their platform.

When the user makes a purchase, the app automatically rounds the amount to the next higher integer and then transfers the spare change to the investment account of the user.

For example, let us say a person has regular coffee from a place and pays using the card.

Then the next time the user has a coffee the amount will round up to the next higher number, and then that higher amount will be deducted from the bank.

The amount may be small that we deposit into the account. Over the period of time, the regular deposits will add up to a considerable amount of money.

Reason to Invest via Micro Investing Platforms

The reason micro-investing platforms can invest so low amounts of money is that these platforms have eliminated the per-transaction fees and the minimum investment.

The users need not save large sums of money for buying one stock or investing in mutual funds. They also do not have to pay high brokerage fees.

Instead, the micro-investment platforms need a very little amount of money per month and the shares are invested infrequently.

Since the shares are in exchange-traded funds (ETF), the investment of the user is across numerous stocks and/or bonds.

These help the users protect their share against any changes in the market. This is beneficial when we compare investing all the money on a single stock.

Why Micro Investing is Attracting the New & Young Investors?

Micro investing is the best opportunity for investors and the people most benefited from this are mainly millennials.

A recent study found out that around 5 out of 10 millennials prefer not to invest in the stock market as they believe they lack sufficient funds to start the investment process.

Due to this reason, millennials are also missing out on the long-term benefits of the stock market.

The micro-investing platforms help these millennials and Gen X investors invest their money on stocks.

In this method, you invest money in numerous investment options such as fractional stocks, EFTs, index funds, and bonds.

The micro-investing platform aims to help people get the habit of saving and investing their money without huge risks.

These platforms also help people learn EFT based on the goals of the people, the risk they are willing to take, the tolerance, and their interests.

Advantages of Micro Investing

Using the conventional investing platforms comes with its own set of rules such as establishing a minimum amount for deposit to start or else to add a fixed amount of money into the scheme at regular intervals.

However, not everyone can afford this. It will be difficult for people who do not have a steady income to invest a large amount of money at first, to help these people there is the option for micro-investing.

Following are the advantages of micro Investing:

Helps Develop a Saving Habit

Micro investing helps the user develop a saving habit. Keeping a small amount of money every day is not a major expenditure.

However, after a prolonged period of time, it adds up to a huge amount. This develops the habit of saving without making any cutthroat adjustments of daily needs.

Not Required to Fill up Big Long Forms

There is no need to fill out big long forms or open a Demat account before investing. We can avoid all this and save it at the click of a button.

This also helps with customer satisfaction and the customer needs to spend much time understanding the simple process.

Affordable for Everyone

It is affordable for everyone. The user need not have a big bank balance to start a savings account. The user can either deposit money daily or weekly basis.

A small amount of spare change can ultimately lead to the build-up of steady savings.

Prior Knowledge of Markets Not Needed

The user does not need prior knowledge about financial markets or investment techniques.

We do not need prior knowledge since the whole process of saving and investing is in automation. The money is automatically saved and also automatically invested in the diversified stock.

Low Fees

The fees are low for smaller accounts. These platforms do not charge huge fees for transactions and investments.

Disadvantages of Micro-Investing

Just like all things, investing in micro-investment platforms also comes with its disadvantages.

Following are some of the disadvantage of the micro-investing:

Not good for Retirement Planning

Saving up a small amount of money may not be enough for the user during retirement.

Investing in micro-investing platforms can be beneficial for wealth building but if a person will solely rely on these methods, then they might find themselves not well paid off for retirement.

With Amount, Fees also Increases

As the account grows the fees charged by these platforms also tend to rise. Once the user starts to invest more into these platforms, the amount charged by them also tends to rise.

In some cases, in the long run, it implies not worth it.

1 Type of Taxable Account

Micro investing platforms tend to offer only one type of taxable account to the investors.

Less User Control on Shares Purchase

These platforms do not give the user control over the types of shares the user can purchase.

Even if they do, the variation is generic like high-risk options, moderate-risk options, and low-risk options.

If the user needs to choose which stock and EFTs the user should buy then, that cannot be done on these platforms. The user must have a trading app and there the investment can be done.

Low on Liquidity

The money cannot be withdrawn immediately. Since the shares need to be sold, it can take up to five to six working business days to withdraw the funds.

In the case of urgently needing some cash, this option won’t come in handy.

Conclusion – Micro Investing

Investing can be an intimidating task as most people who have no idea about investing have to rely on a smart guy in a suit.

This is not the case with micro-investing platforms. One can save in these micro-investing platforms for use in the future.

Investment money for a long time is a smart way to save money for the future. Micro Investing inculcate within people a habit of saving money and investing it at minimum to no charge at all.

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