Updated on March 9, 2023
Initial Purchase is the minimum or smallest investment amount which can be used for starting a new account. It can be considered the minimum entry level amount for starting an investment account. The initial purchase requirement depends on the investment category. The amount required for setting up initial purchase in a mutual fund will be very small as compared to a Hedge Fund, a Venture Capital Fund or a Real Estate Investment Trust (REIT). Investors who are starting out or who have a small initial amount to invest should check the investment’s criteria for minimum initial purchase amount.
What are the features of Initial Purchase?
Features of Initial Purchase are:
1. Initial Purchase figure indicates the minimum amount that may be invested in a particular investment account.
2. The one time minimum initial purchase amount may be different from the subsequent payment requirement.
3. A retail mass market investment product like an index fund will have a low initial purchase threshold than a REIT or other U/HNI products.
4. Sometimes the fund/investment manager or company will have a higher initial purchase barrier for protecting customer interests, like in the case of specialised funds or PMS schemes where the risk is high.
What are the benefits of Initial Purchase?
Benefits of Initial Purchase are:
1. It notifies the investors about monetary restrictions for becoming a stakeholder.
2. It helps in managing the liquidity demands of the investment fund.
3. As per the strategy and objectives, short-term investors can be denied entry through high Initial purchase barriers.
4. It also helps in keeping the costs low1.