Are you afraid of investing a lump sum amount in mutual funds? Do you want a better way to invest your money in mutual fund schemes? You may consider putting money in the mutual fund through the systematic investment plan or the SIP. It helps you to stagger your investments mainly in equity mutual fund schemes over some time. You can even put money in stocks through the systematic investment plan. However, Is this a good idea, or should you stick with mutual fund SIPs?
What is Stock SIP?
The Stock SIP works on the same principle as the systematic investment plan in a mutual fund. You buy shares instead of investing your money in units of mutual funds.
You may purchase a predetermined quantity of shares at specific intervals of time or stocks within a fixed amount at regular intervals. For example, you may consider buying 15 shares of a particular company each month. You can even select a certain amount, such as Rs 10,000, to purchase the stocks of a specific company at regular intervals of time.
Several brokerage houses offer you the opportunity to buy stocks through a systematic investment plan. You may even purchase the shares of more than one company through the Stock SIP.
What are the benefits of the systematic investment plan?
SIP investments inculcate a sense of financial discipline as you invest a fixed amount at regular intervals. It helps you to achieve long-term financial goals, such as buying a house or accumulating a corpus for your child’s higher education.
Also Read: Should You Invest in Equity Funds When Stocks Are Doing Well?
You may struggle to put a lump sum amount in stocks or mutual funds. However, you can invest as low as Rs 500 per instalment in a systematic investment plan of a mutual fund scheme. You may consider this pocket-friendly approach to ensure a regular and disciplined investment.
A significant benefit of investing your money in mutual funds through the systematic investment plan is the rupee cost averaging. You may invest a fixed amount of money at regular intervals irrespective of the market conditions. You can buy more units of the mutual fund when stock markets are low and lesser units when they are high. This approach helps you to avoid timing the market.
Should you invest in stock-specific SIPs or mutual fund SIPs?
You may consider putting your money in stock-specific SIPs only if you are an aggressive investor. You will have to pick the best stocks and decide when to enter and exit the investment. However, purchasing stocks at regular intervals reduces the risk of timing the market.
Investing in a stock SIP may put your money in the shares of just one company. You are exposing the investment to company-specific risks if you don’t select the right stock. If you invest in equity mutual funds through SIP, you are putting your money in a basket of stocks across different sectors called diversification. It protects your investment from the volatility of the stock market. You also have a fund manager who manages the fund and a team of researchers to pick the right stocks.
You may invest in SIP of stocks only if you are a seasoned investor in the stock market. If this is your first-time in stocks, you may consider investing in equity mutual funds through the SIP.
It would help if you chose an investment depending on your investment horizon and risk profile. Invest your money in a stock SIP only if you have the knowledge and time to select quality stocks. Otherwise, you may put money in equity funds through the systematic investment plan. In a nutshell, you may invest in stock-specific SIPs only if you are a seasoned investor with a high-risk tolerance. First-time investors in the stock market may consider investing in equity funds through SIP for wealth-creation over the long-term.
For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in
I write to make complicated financial topics, simple. Writing is my passion and I believe if you find the right words, it’s simple.
