SEP or Systematic Equity Plan can be used to stock up direct equities in a systematic way. Awareness as well as customer interest has taken the total number of SIP account with different mutual fund houses to cross the 1.5 crore benchmark. Systematic Equity Plan (SEP) or SIP in stocks work similar to SIP in mutual funds in the sense that it allows an investor to invest systematically in direct equities by buying a specific stock in specific number after a specified interval or stipulating a limit in respect of the maximum amount for which stocks can be purchased after a specified interval.
So, an investor can invest in SEP either based on amount or quantity. The periodicity of the investment in the systematic equity investment can be daily, weekly, fortnightly or monthly.
To better understand how it works? Say you as an investor in SEP can ask your brokerage firm to either buy two shares of a company X after every month. Or you can stipulate an amount say Rs. 10000 to buy company X shares every month.
Benefits of SEP
1. Helps to average out cost over the longer run.
2. Regular and disciplined investment through SEP helps avoid the otherwise disastrous call of timing the market.
3. More flexibility, as investor is allowed to invest based on either amount or quantity.
4. Wide options in respect of investment intervals of daily, weekly, fortnightly or monthly. ICICI Direct provides an option to choose from 1 month to 24 months periodicity timing.
5. No financial strain as lump sum investment is not done instead a specific amount can be invested after a certain specified time.
6. In case the fundamentals of the company in which you have advised your SEP seem to have deteriorated, you can even stop the SEP and prevent yourself from committing a large amount in the beginning itself.
7. Primarily a company with strong fundamentals needs to be chosen and sticked on to for years to reap SEP benefits.
SEP- Suitable for whom?
If you do not want to fail in your investment call while timing the market you can take the SEP route as there can be chances that the market takes a downward move or in the other case your investment bet is highly inflated and does not hold good fundaments in a bull market. Also, those of you who invest primarily in equities can invest through SEP for averaging out cost in the longer run while gathering a sizeable pile of equity shares.