We are well aware of investing in mutual funds through systematic investment plan or SIP. Instead of investing a large amount in one-go, SIP allows you to invest in small fixed amounts every month. It is the best way to participate in equity market for retail investors. In the similar manner, brokerages allow SIP in stocks. It is an easy method which allows investors to buy stocks periodically in a systematic manner.
An investor may either set up a fixed amount or fixed number of shares to be bought at specified intervals like weekly, fortnightly or monthly. Just like in mutual funds, an investor can choose to do SIP in more than one stock. You can start a single-stock SIP or invest through a basket of stocks. While some brokerages offer a fixed set of stocks, others let you choose any stock that you want to invest in.
Different brokerages may call the SIP in stocks facility with different names. For an instance, HDFC Securities call it as ‘Stock SIP or DIYSIP (Do it Yourself – SIP)’, Kotak Securities calls the method as ‘Auto invest’, and so on.
How is SIP in stocks different from SIP in mutual funds?
While a mutual fund offers a portfolio of different stocks, SIP in stocks, might not offer the diversity on its own. You have to have the understanding of creating a diversified basket of stocks to do SIP.
Also, you must know when to exit a stock. SIP in a stock is way more riskier than SIP in a mutual fund. You have to be aware of any news around the stocks you possess because if you are stuck with a stock like Yes Bank, which at one point of time was delivering wonderful returns, you might end up ruining your wealth.
When is SIP in stocks useful?
SIP is a great way to invest and benefit when the markets are highly volatile and is useful for long term investors provided, the investor is sophisticated enough to understand when to exit a stock.
You must take advise from your financial planner in case you do not have enough knowledge of choosing stocks and making an entry and exit from them.
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