Systematic Investment Plan in Equities (EQUITY SIP)

Equity SIP

First of all, it is very important to understand the meaning of directly investing in equity and the associated risks. Investing in direct equity means buying shares of a company – becoming a part owner of that company. Being a shareholder of a company means partly chipping into the ownership of the company, thus as a part owner of the company, one is entitled to the associated business risks as well as the share in profits and growth of the company. Nowadays many investors prefer investing in equity mutual funds which further invest in the equity shares of the companies listed on the stock exchange. The primary motive for such a mode of investing is to diversify its holdings so as to minimize the overall risk exposure to a specific business/sector. Investing via mutual funds may be a good way of investing, however, there are extra benefits that a direct investment in equity offers.

Benefits of investing in direct equity

  1. Control of an investor on stock selection
  2. Exposure to a particular stock can be increased or decreased at the discretion of the investor
  3. Direct credit of Dividend in your bank account
  4. One can avoid the risk of over diversification by having exposure to a limited number of stocks
  5. Low cost of investment since there is no management fees involved
  6. There is high liquidity

Risk Exposure

Risk exposure in Equity SIP

One needs to understand that there is an added risk while investing in equities if the decisions are not taken under the guidance and advice of an expert. Mutual funds are usually considered to be most appropriate for those individuals who are risk-averse by nature. However, investors in equity or individual stocks tend to be more active with a tendency for taking risks. In this sense, mutual funds are presumed as a comparatively ‘safer’ bet than direct investment in equity stocks, due to their low risk quotient because they are managed by well-equipped and trained professionals/experts. Towards the end of the article, we have an innovative investment tool which is made by taking the best of both worlds.

Higher Returns

Higher Returns in equity SIP

Without a doubt, higher risk offers higher returns to the investors. While mutual funds offer investors very decent returns over a period of time, equity stocks have the potential to bring the investor extremely high returns over a much shorter period of time. Investing in stocks can be difficult and is usually only done by individuals and institutions with a higher level of understanding of market conditions and the business cycles.

Investing in equities can be highly rewarding for those who have adequate knowledge of the capital markets as well as have the capability and appetite to take risks. But more often than not, retail investors lack the expertise, knowledge and even the time to conduct the relevant research and educate themselves about the nitty-gritties of the capital market. In such cases, it is best to leave your hard earned money in the care of professional money management experts or fund managers of mutual funds.

Alternatively, the investors desiring to invest in equities only can look forward to opt for the basket portfolio from Stockbasket. This will help them to efficiently manage their portfolio, earning superior returns at a low cost. The stocks in these baskets are carefully selected, efficiently monitored and appropriately rebalanced depending on a number of parameters and its past performance.

What to do if a chosen stock underperforms in the short term?

Finding the right time to invest in the market has never been a friend for most of the investors. Instead, long term investors opt for Systematic Investment Plan (SIP) into equities i.e. Equity SIP. Equity SIP is a flexible investment plan. The amount of investment or the number of shares is determined by the investor and such amount is debited from the bank account each month and invested in the specific shares. They are ideally meant for long-term investors. It helps you make the best of the unpredictable market by adopting a disciplined investment strategy.

A SIP enables you to break your investments over a quarterly or a monthly period. The investor can either provide post-dated cheques (‘PDCs’) or easily opt for the electronic clearing service (ECS) under which your bank will automatically debit the given amount on a specific date, to be invested in the mutual fund scheme as per the directions of the investor.

SIPs are ideal for long term passive investors who do not have the market expertise or a big lump sum amount to be invested immediately or the time to monitor their investments constantly. Through SIPs, the investor can easily benefit from the power of compounding in the long term and build a sizable corpus over time.

Here are a few benefits of choosing an Equity SIP :

Benefits of equity SIP
  1. Small InvestmentsEquity SIPs can be started with a small amount of money invested at regular intervals. Investing in best equity SIP can be done without the burden of investing in one go.
  2. Cost Averaging toolRupee-cost averaging is a strategy to reduce the impact of volatility by spreading out your stock or fund purchases so you're not buying shares at a high point for prices. Rupee-cost averaging is the strategy of spreading out your stock purchases, buying at regular intervals and in roughly equal amounts. Cost averaging technique will help if a company misses quarterly estimates and the stock goes down. If the entire market nosedives vertically giving negative returns and pushes the stock prices down with it, the investor can look to add more quantity of the same stock at deep discounts and lower its weighted average cost of investment, provided the business model of a particular investment is fundamentally viable and feasible - overall it should be good company.
  3. Disciplined approachIt is a simple and disciplined approach towards investment. SIPs are generally linked to an auto-debit mandate i.e at specified date your chosen amount will be automatically debited from your bank & invested in equities.
  4. Flexible approachFlexibility in terms of amount, time period and quantity i.e. the investor can decide the amount or the quantity of investment at each interval as well as can determine the gap between two investment intervals. However, more regular investment plans have higher chances of success in the long term, usually monthly. Long term financial goals can be met with SIP.

As mentioned above, equity investments have a higher risk associated with it – such as failure to keep up to the estimates in some quarter, business failure, interconnected asset prices underperformance etc. Hence, it is very important to make an informed decision when selecting a stock for the equity SIP. The best way to do an equity SIP is via StockBasket. As discussed in the beginning of the article, let us help you understand StockBasket is best of both worlds:

  1. Expert curated Stocks: StockBasket has an expert-curated basket of Stocks which help the retail investors to pick the right stock.
  2. Dividends: Dividends given by the companies are directly transferred in the investors account
  3. Lower Cost Model: StockBasket platform gives you the top quality of baskets of stocks for your portfolio at a very minimal cost in comparison with PMS.
  4. Control: Investors have sole control over their portfolio unlike any other PMS or a mutual fund scheme
  5. Avoiding Over-diversification :Mutual fund schemes own stocks ranging anywhere from 25 to over a 100 which leads to too much of diversification and could hamstring investors from earning higher returns.

Types of Equity SIP

Amount based SIP: The investor decides a fixed amount to be invested each month/quarter/year in the particular stock/mutual fund for a specific time period.

Quantity based SIP: The investor decides a fixed quantity of shares to be purchased each month/quarter/year of a particular stock/mutual fund for a specific time period.

Another question that is on most investor’s mind - What is the right time to start investing via SIPs?

The most simple and direct answer would be ‘NOW’. One of the most important benefits of investing in the form of a SIP is that the investor no longer has to time their investment. The investor shall invest at all times. The number of investors using the SIP route to invest in equity mutual fund schemes is increasing gradually over the last three years, with many first timers entering the fray and mapping their long-term financial goals to SIPs.

Summary

We at StockBasket believe that Stock Selection is a tricky art with less than 20% chance of success. Hence, it is very necessary to select the right stocks with high quality research and data analysis. Retail investors, more often than not, fail to do the required research and therefore, end up buying an underperformer. Click here to explore baskets based on the goals of the investors, time frame, investment amount and other various factors to ascertain the correct basket of stocks. A regular SIP into these baskets will help the investor to meet the primary, secondary as well as the aspirational goals on time.



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