Systematic Investment Plan or SIP in stocks is a concept similar to mutual fund SIP. In this case, small investments in stocks can be routed through SIP at regular intervals. The said concept is intended to benefit from the unpredictable stock price movements.
SIP in stocks is also known as – do-it-yourself SIP, equity SIP, stock SIP, etc. Generally, investors carry the option to start a single stock SIP or route their money via a basket of profitable stocks.
Typically, investors are required to select a few stocks, choose a suitable monthly investment amount, and route their investments at a specific interval from their Demat account that matches their financial goal.
Features of SIP in Stock
SIP in stocks follows a simple yet disciplined approach towards investment. It intends to minimize the impact of market risks and aims to boost savings through regular investments.
The following are among the prominent characteristics of this investment plan –
1. Risk level
Investors are exposed to company-specific risks, which is why they should make it a point to track and analyze company performance. In doing so, they will be able to determine the correct time to exit a company. Also, too much exposure to a single stock can erode the scope of wealth generation if the underlying company underperforms.
2. Cost of Investment
The minimum investment for every installment is kept at a low price. For instance, based on the brokerage involved, the minimum cost of acquisition per installment can be as low as Rs.100 or Rs.500. It must be noted that investors need to pay brokerage against every trading that is executed. Consequently, they may consider maintaining a low-brokerage Demat account.
3. Stock Selection
In most cases, SIP stocks are offered by brokerage houses. Regardless, the task of selecting stocks of specific companies and timing market entry or exit rests entirely on investors.
SIP in stocks is based on the concept of Rupee Cost Averaging. Typically, it is a technique wherein one purchases more units when the market price of equity shares is low and sells them off at a higher price when the market is thriving.
A noteworthy feature of this type of investment plan is that it offers investors flexibility in terms of –
- Investment amount.
- Investment Horizon.
- Share units.
Who should invest in SIP in stock?
SIP in stock allows investors to accumulate wealth with small investments and also helps them benefit through the Power of Compounding. Nonetheless, it comes with a fair share of risks.
As a result, financial experts recommend this investment plan to seasoned and savvy investors. Thus, investors who are adept at analyzing company reports and are thorough when it comes to understanding business dynamics should consider investing in stock SIPs.
How does SIP in stock work?
Under this investment option, investors can park their funds into a fixed quantity of a specific stock at regular intervals. Depending on the plan chosen, the said interval can be monthly, quarterly, or half-yearly. It must be noted that investors can enable an auto-debit mandate and select specific dates when shares would be purchased and curated in their Demat account for a fixed time horizon.
The entire investment process can be divided into these 3 steps, namely –
Step 1 – Creation of stock SIP template.
Step 2 – Picking up a date to start SIP.
Step 3 – Creating a Demat account.
Investing through this route is considered riskier than mutual funds as investors are exposed to the risk of underperforming shares. Resultantly, seasoned investors often diversify their portfolio to weather the associated risks more effectively and maintain their Demat account with the help of market experts.