Over time, systematic investment plans (SIPs) have gained popularity as a way to invest. SIPs allow you to make purchases regularly and develop the habit of making your money work for you. Interesting, right? Let's talk about the Equity (Stock) SIP
What is Stock SIP?
A systematic investment plan is referred to as a SIP. Similar to how you set up a regular investment plan for mutual funds, Stock SIP refers to creating one for equity investments. Wealth will grow by averaging out market risk and compound return over your investment horizon. A simple way to invest in stocks is through Stock SIP. It enables investors to buy stocks systematically regularly (weekly, monthly, etc.), amount- or quantity-based. For long-term investors, it is the best method of investing. By using a disciplined investment strategy, you can take advantage of the volatile market to your advantage.
Why is Stock SIP a wise decision?
The important features and advantages that make Stock SIP an appropriate investment choice are listed below.
1. Reduced Risk
Stock SIPs make it possible to lower risk by "rupee cost averaging." Typically, markets move in cycles. You can take advantage of the market's cyclical nature by investing consistently throughout these market scenarios over several years.
You can purchase more shares when the price is low and fewer shares when the price is high due to the flexibility of stock SIPs.
SIPs average out the extremes of purchase prices in this way. You also have total control over your investment, so you can choose less risky companies or combine shares to create a portfolio with possibly lower risk.
2. Cost Effective
The initial cost you need to start a stock SIP is low, as it is limited to the price of the share. Thus, if you are a new investor with limited capital looking to invest systematically, you can choose stock SIPs. You can also step up your SIP in line with your income.
Stock SIPs give buyers a chance to gradually accumulate a decent number of shares over time. For instance, even if you begin with just 2 shares of ABC company worth 450 each month, at the end of the year you will have 24 shares of the business. It is less of a burden on your pocket as you don’t have to make lumpsum investment decisions.
4. Less Paperwork
You need to open a Demat Account to start Stock SIP. The process is simple and happens entirely online which means little to no paperwork. Many brokers do not charge any account opening charges.
5. Disciplined Approach
Daily, weekly, or monthly investments help you develop a routine for saving and spending. Your investment is organized by having the money for the stock SIP deducted straight from your bank account on a predetermined date.
6. Power of Compounding
Stock SIP is a long-term wealth creation instrument that could assist in balancing your expenses and risks. The compounding impact of a long-term investment could multiply significantly.
Some More Details on Stock SIP :
When you fully understand what a stock SIP entails, you will instantly be able to determine whether this type of transaction is suitable for you and your unique financial needs and objectives. In place of the traditional buying and selling of shares, the stock market of today offers you a variety of choices for investing in stocks. Here are some additional characteristics of stock SIPs in addition to those already mentioned to assist you in determining if this type of transaction is right for you:
A stock SIP may be stopped or Put on Hold for a specific time.
A stock SIP's pause provision gives investors financial freedom.
Investors are free to change the company or the amount of money deposited in a SIP.
In terms of price, indirect plans (mutual funds) have a fee percentage that can reach 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.
Stock SIPs can be a useful tool for achieving your long-term financial goals. It allows more flexibility and distributed risk for investors who want to build wealth regularly. Moreover, Stock SIPs are more cost-effective when compared to mutual funds SIPs.