When making an investment, no matter what type of company you will be investing in, there is usually a minimum amount required to invest. Of course, if you’re starting with a small amount of money then knowing the minimum you can invest is very important.
To help you get started, let’s take a look at the companies and what their minimums are:
SEC companies are those that must register with the U.S. Securities and Exchange Commission (SEC). With having to register comes strict regulations; one of which being that funds must have directors who are responsible for structuring and managing policies and procedures, safeguarding security portfolios, keeping detailed books and records, and forwarding price securities.
Here is a short description of the SEC companies and the minimum amount required to invest for each:
- Mutual (Open-End) Funds – These companies pool money from numerous investors then invests in stocks, bonds, and various securities. The smallest amount to invest is usually around $1,000 with nothing else needed to keep it going.
- Closed-End Funds – These companies sell a fixed number of shares in one initial public offering that later trade on a secondary market. As for the minimum amount required to invest, there is none.
- Unit Investment Trusts (UITs) – These companies also make one-time public offerings of a fixed number of redeemable securities, but they’re called “units.” The units will terminate and dissolve on a date specified at the creation of the UIT. Their lowest investment is typically $5,000 (equity UITs may be $1,000).
- Exchange-Traded Funds (ETFs) – These companies aim to achieve the same return as a particular market index. They can be either open-end companies or UITs. ETFs have no minimum investment aside from the market price of one share.
The Hedge Fund is a slightly different type of investment company because it is not required to register with the SEC; instead, it issues securities in private offerings. When it comes to the minimum amount required in making an investment, these funds often won’t accept money from those who don’t hold at least $250,000 in investments. Utilizing this strategy helps to limit participation, thus those who are highly sophisticated in the world of investing only play with these types of funds.
Choosing which type of investment company to go with will likely rely largely on the amount of money you have to invest. Once you determine which company you want to invest in, making an investment will be that much easier.