What It Is:
How It Works/Example:
Many types of investments have a minimum investment, including mutual funds, certificates of deposit (CDs), unit trusts, limited partnerships and hedge funds. Minimum investment can range from a few hundred dollars to several million dollars, depending on the investment.
Why It Matters:
By requiring a minimum investment, investment managers can put a barrier in front of short-term investors who may be inclined to jump in and out of a fund at a moment's notice. It helps provide a certain amount of consistency to the fund manager -- he/she should have a rough idea of how much money is in the fund and available to invest.