Minimum Investment

A minimum investment is the smallest dollar or share quantity that an investor can purchase when investing in a specific security or fund. Most often seen in relation to mutual funds, minimum investments are also found consistently in fixed-income securities, hedge funds, collateralized mortgage obligations (CMO) and limited partnerships (LP), where a thousand-dollar unit is typically the smallest investment allowed.

Minimum investment amounts can vary across mutual fund share classes and stretch anywhere from $0 all the way to $1 million or more for institutional shares. Hedge fund minimum investments can be even larger, as can some LPs and unit investment trusts. For retail investors, there remains a large selection of funds that have modest minimum investments of a few hundred dollars.

A big factor for a fund manager in determining a minimum investment size is the strategy and liquidity demands of the fund itself. By setting a high minimum investment, fund managers can effectively weed out short-term investors and regulate cash inflows to the fund, which can be helpful for day-to-day management of the assets.

Some funds may have minimum investment amounts that vary by trading platform due to arrangements between the broker-dealer and the fund company. Generally, investors must consider minimum investment allocations when seeking new investments. Subsequent investment levels also vary but often are not predetermined.

The SPDR S&P 500 ETF (SPY), Vanguard 500 Index Fund and the Vanguard Institutional Index Fund are three of the largest funds by assets under management in the U.S. Like the SPY, most exchange-traded funds (ETFs) do not require a minimum investment.

SPDR S&P 500 ETF

SPY seeks to track the holdings and performance of the S&P 500 Index. It trades at approximately $275. While investors could buy just one single share of the fund, most investors will choose to buy multiple shares to spread the trading cost for greater capital gains per share.

Vanguard 500 Index Fund

Minimum investments vary for the Vanguard 500 Index Fund, with investor shares (VFINX) and Admiral shares (VFIAX) trading at $254. VFINX requires a $3,000 minimum investment for the investor shares with most broker-dealers. VFIAX is a share class offered through financial advisors and requires a $10,000 minimum investment. The Vanguard 500 Index Fund strategy is also offered as an ETF (VOO) which trades at $252 with no required minimum investment.

Vanguard Institutional Index Fund Institutional Shares

The Vanguard Institutional Index Fund Institutional Shares is an index fund for institutional investors that tracks the S&P 500 Index. The Fund requires a $5 million minimum investment.