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What is a stock SIP and who should invest in it?

04 Jul 2024

By now, most investors are familiar with the term, “Systematic Investment Plan”, or SIP. This refers to an investment scheme which invests a fixed amount of wealth at regular intervals. These intervals could be daily, weekly, fortnightly, or monthly, depending on an investor’s capacity. You can invest in mutual funds through a SIP, and this is a popular way to invest today. Most moderately conservative investors who don’t want direct equity investment in the share market today favour SIPs. 


What is a stock SIP?


In a regular mutual fund, you may invest your wealth in stocks, debt funds, or a mix of these two, depending on your risk appetite and your investment potential. A lump sum may be invested in a mutual fund. In a stock SIP, you can invest like you do in a mutual fund, but do so at regular intervals based on your unique ability to have funds at your disposal. More importantly, a stock SIP will invest your wealth in stocks exclusively, barring other asset groups like debt. Furthermore, you do not have to open a demat account with a stock SIP, so although you invest in the share market, you have less paperwork. 


With a SIP, you can make gradual investments, and this decreases your risk quite substantially. How is this possible? Well, a stock SIP helps you invest in more than a single company’s stocks, so you can choose companies with potentially less risk than others and have a mix of shares to balance your investment. Since you invest small amounts according to your level of risk, you cut down substantial losses, if any. Some inventors prefer a stock SIP to any upcoming IPO as a stock SIP lets you invest intermittently in various company stocks rather than just one at a single time. 


Why Investors Like Stock SIPs


Many an individual retail investor may not wish to open a demat account for various reasons, yet may want to invest in the potentially lucrative share market today. A stock SIP comes as a welcome option for such investors. You can fix amounts you wish to invest, the intervals, and the stocks to invest in, although the amount of stocks you may wish to buy may change due to shifts in prices of stocks. Commonly, a stock SIP is known as a “DIY SIP”, or a “Do-it-yourself” SIP. There is no mutual fund manager involved and the investor determines which shares are to be chosen for investment. This gives investors some confidence in making investment decisions as investors exert independence in investment decisions. 

Some More Details On Stock SIPs

Once you know all about what a stock SIP involves, you will automatically get an idea of whether this kind of investment suits you and your individual financial requirements and goals. The share market today can let you have many options to invest in stocks, rather than a conventional buying and selling of shares. Besides the features of stock SIPs already highlighted, here are some more to help you decide whether this investment avenue is for you: 

  • A stock SIP can be halted/paused for a particular period. 
  • The pause clause in a stock SIP allows investors flexibility in investment. 
  • Investors are permitted to modify a SIPin terms of the stock invested in, or the funds invested. 
  • Although this channel of investment is known as a “Stock SIP”, a few brokers who you may sign up with allow ETF (Exchange Traded Fund) investment as well (as these are traded/transacted on exchanges).
  • As far as the cost goes, indirect plans (mutual funds) can charge an expense ratio going up to 2.5%. In the case of stock SIPs, the charges resemble those of the delivery charges in the equity segment. Transaction charges are kept low in stock SIPs. 

Who should invest in stock SIPs?

With all the information you are armed with, you may arrive at the question of whether a stock SIP is for you. You do not have to open a demat account, but this should not be the only reason why you opt for a stock SIP. Here are some clues to help you to know whether you should select a stock SIP for your portfolio: 

  • Suitable for those who wish to invest in stocks in a systematic way.
  • Suitable for those who wish to actively manage investments.
  • Suitable if you want a balanced and diversified stock portfolio.
  • Due to the exclusive investment in stocks and the share market today, you may think this involves higher risk, but you can have a range of  stocks so you mitigate risks to an extent. 
  • Suitable for those who have some knowledge about when to modify a SIP (exit a stock and enter a new one), and hence, wish some flexibility in investment. 
  • A stock SIP is right for investors who wish to gradually build an equity plan over a long period, making regular and fixed instalments of investment. 
  • A stock SIP may be a good bet for investors who feel they may not have funds to invest intermittently, as stock SIPs allow for a pause in investments. 

Some of Everything

The beauty of investment today is that you have a range of options as an investor. Depending on your own risk-taking potential and the capital at your disposal, you can invest in a number of ways, and customise your financial portfolio. The main rule of thumb is to go in for diversification. Some investments like those in direct equity will require you to open a demat account, and you can do this free of charge. You also need a demat account for any upcoming IPO (which has been somewhat of a craze in investment lately) investment. You can calculate your returns with a stock SIP by using a Stock SIP calculator. This enables you to plan your budget of regular investments with foresight. 

With a stock SIP, you do not have to have a demat account, and a stock SIP may suit you for any reason. Along with this, you can think of other investment routes like a mutual fund, bonds, etc, so you have the best of everything in your portfolio. This gives you the scope of returns on investment and helps to lower your risk factor. 

Related Articles : What is the return in SIP for 10 years | 5 reasons for the sharp growth in SIPs in India | 7 Good Reasons to Invest in SIPs 


Popular Stocks:  HDFC Bank share price | ICICI Bank Share Price | UPL Share Price | Tata Consumer Share Price | Divislab Share Price

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