Investments in general need to be based on one's profile, risk-appetite and long term financial goals. Mutual funds via the SIP (systematic investment plan) route offers the advantage of disciplined investing as money is put in periodically and further it is managed by fund managers who have years of experience into managing investors' money and provide returns on them.
In the case of mutual fund SIPs, another point that cannot be ignored is that the investor need not time the market and the benefit of diversification through the pool of varied investments and rupee cost averaging is realized by the investor. This is as when the market is down, investor gets more units and vice-versa.
SIP in stocks: How does it work?
Similar to SIP in mutual funds, various brokerages allow investors to take the SIP route for buying stocks. Here in the selected stocks are added to one's portfolio at some pre-defined interval in a systematic manner through the SIP route. Interestingly, brokers have given different names to this SIP in stocks facility say for instance HDFC Securities calls it as 'Stock SIP or DIYSIP (Do it Yourself - SIP)', while Kotak Securities offers this facility under 'Autoinvest'.
Now here investor can either mention the fixed amount for which the shares are to be purchased periodically or they can provide the fixed number of shares that need to be added at pre-defined intervals say weekly, fortnightly, monthly etc. But here what works in favour of an investor is fixing the amount.
Further, one can go in for a single stock SIP or have a basket of stocks for the SIP. And brokerages based on their discretion may allow you to invest in the fixed set of equities or may even offer the flexibility of choosing the equity you wish to invest in through the SIP. So, SIP in stocks is like automating your stock investment and brokerages do even come up with recommendations on stocks in which SIP can be initiated.
Also, in most cases, brokerages have kept this minimum investment per installment amount as very low i.e. Rs. 100 or Rs. 500 as per the brokerage.
SIP in Mutual funds versus SIP in stocks: The difference
|Feature||SIP in mutual funds||SIP in stocks|
|Suitable for||More suited for retail investors or first time investor in equity market (those who cannot time the market)||For those looking at actively managing their equity investing or those who are savvy and seasoned equity investors|
|Diversification||Well-diversified with a basket of securities||May or may not be diversified. However SIP in stocks is suggested with a handful of stocks in the portfolio and not just one|
|Rupee cost averaging benefit||It is realized||This benefit is realized when the investor chooses the fixed amount that needs to be put in periodically for buying equity|
|Risk level||Less risky||More risky|
|Stock selection and entry/exit needs to be timed||Managed by fund managers||Investors need to make the right choice and should also be timing the entry and exit point from the stock|