What is stock SIP means Systematic investment plan, which is a great way through which you can build a large capital by making small investments regularly. This is considered a very good method, especially for those investors who invest slowly for a long time. Traditionally, SIP is used in mutual funds, in which a fixed amount is invested every month and it increases with time.
Now SIP can also be used for stocks. Now you can invest a fixed amount in a particular stock every month. In this, not only is disciplined investment done for you, but you also get a very good opportunity to buy shares at an average price due to the fluctuations of the market. This is a new type of investment plan with time, due to which now Stock SIP has become a better opportunity for new age investors.
What is Stock SIP?
Stock SIP is a great method in which you invest a fixed amount in a particular stock every month at a fixed time. In a simple mutual fund, you only invest money, but in Stock SIP, you have to directly buy shares of a company. In a fixed amount and at a fixed time.
You get a better option in Stock SIP. Like in Mutual Fund SIP, your investment or your money is invested in many shares by the fund manager, whereas in Stock SIP, you decide for yourself which stock you want to invest in, meaning its control is in your hands.
Its popularity is increasing among investors. It also provides a good option for stock market investors. In this, you invest in a disciplined manner. In this, shares are bought at an average price. And if you invest in it for a long period, then you get very good returns. This is a better option for those who invest in the stock market because those who invest directly in the stock market but want to start with small amounts.
How does Stock SIP work?
Stock SIP works in a very simple and easy way. The investment process in this is also easy and accessible. First of all you have to choose the shares. You have to choose only those shares in which you want to invest. For this selection you have to invest in your research company on the basis of better performance and future prospects.
After all these processes, you have to decide how much amount you have to invest in it every month or every day. Because this is a disciplined investment plan. For example, you will invest ₹ 500 or ₹ 1000 every month in the shares of a particular company. This is a very good investment plan. In this you have to work a little hard in the beginning, and there can be some trouble too. But once setup, this process happens automatically, every time the fixed date
In this, money will be deducted from your account and will go to the stock in which you have chosen to invest. And in this way, without worrying about market timing, you start investing in a very better way and with discipline and can earn a good return for the long term.
Benefits of Stock SIP
Stock SIP has many benefits. It is a smart investment method along with a better benefit. In this, investors get attractive options. The biggest benefit in this is rupee cost averaging, which means when the price of the stock increases, you get fewer units. And when the price of the stock decreases, you get more units. This keeps your purchase price balanced.
Stock SIP helps you develop a better habit of saving and investing regularly. Because it is considered a disciplined investment. It gives tremendous benefits to investors. The magic of compounding also works in this. In this, as your shares and dividends increase, the value also increases.
The most special thing about Stock SIP is that you do not have to worry about market timing, you keep investing regularly, whether the market is up or down, due to which your risk also remains balanced.
Risks and some precautions of Stock SIP
Before investing in Stock SIP, it is necessary to understand some precautions and risks involved in it. Even though Stock SIP is a smart investment method, the first risk in it is market volatility, that is, the ups and downs of the stock. If there is any kind of decline in the market, then the value of the investment made by you can decrease temporarily.
The second risk in this is stock specific decline. If you have started SIP in the shares of a company, and its performance is not good or is performing poorly and any negative news comes, then there can be a huge decline in the price of the stock. Before investing in stock SIP or to be successful in it, you need to have an understanding of the stock market and companies, and at the same time you have to always stay updated with new information about it.
If you invest without information just by looking at the brand name or trend in the market, then you may suffer huge losses. Therefore, whenever you intend to invest in stock SIP, try to understand things once in depth. And understand the fundamentals of the company well before investing.
How to start Stock SIP
In today’s internet and online era, starting a stock SIP is very easy. First of all you will need a reliable brokerage platform. You have to choose a brokerage platform that provides the facility of stock SIP, like Upstox, Grow, Zerodha.
After this, you have to go to that platform and select the shares in which you want to invest. Before selecting the shares, you need to have some knowledge of the market.After this, you have to decide your investment amount and frequency, that is, how much amount and for how long you are going to invest in it. Like, invest ₹ 500 every month or every week. Once this process is set, your stock SIP will start running automatically.
After investing in it, you should keep paying attention to it from time to time. Because you should keep changing it according to the market situation.
For whom Stock SIP is a better investment process:
Investing in Stock SIP is a better option for those people who want to fulfill their financial goals for a long time. This is not a hasty process. This is a disciplined investment plan in which you will have to give a long time. It will be better for those investors like retirement planning, children’s education or buying a house. At the same time, this method helps you to build capital slowly.
This process is better for those people who have a basic understanding of the stock market such as the fundamentals of the company, market trends as well as risk management. This process can be a very effective option for all these people.
This is a long term investment plan. In which you invest a large amount at once and invest small amounts regularly with discipline. This method will be beneficial. Especially in stock SIP, it keeps investors away from the hassle of market timing. And develops the habit of investing in a better way.
Difference between stock SIP and mutual fund
Both stock SIP and mutual fund SIP are methods of regular investment. Investment is done in both for the long term. Still, there are some important differences between the two. Which is very important for investors to understand. Some important differences between these are being told to you.
In stock SIP, you have to choose yourself in which companies’ shares you want to invest. Whereas in Mutual Fund SIP, the fund manager invests your money in many stocks for you. In Stock SIP, you get more control but there is more risk in it because it depends on one or few stocks. On the other hand, if we talk about Mutual Fund SIP, then there is diversification in it which has a little less risk.
If you have an understanding of the stock market, then you know the ups and downs of the market. If you do research from time to time, then Stock SIP can be a better option for you, but if you are afraid of taking risks. If you do not want to take risk or want a low risk option, then Mutual Fund SIP will be good for you. This investment can be based on your understanding and knowledge of the market, the more you know about the market, the better this investment will be for you.
Case studies and some examples
To give you a better understanding through this article, a case study and example are being given so that you get some information before investing in stock SIP. Suppose you started a stock SIP in January 2020 in a big company like MRF. Investing ₹ 1000 every month, you can increase your 5%Invested ₹60000 in 2018.
During this time, the price of shares in the stock market always fluctuated. But you continued the investment process every month till 2025. Due to the value of shares and dividends, your investment could reach around 90000 rupees to ₹100000 (depending on the performance of the share).
This example shows you the benefits of rupee cost averaging and long term investment. If we talk about real life case studies, according to many investors, they have got excellent returns in many years by doing stock SIP in companies with strong and excellent fundamentals like Infosys, HDFC Bank, Reliance. The main thing – whenever you invest, do research first and choose only strong companies.
Conclusion:-
Through this article, its advantages and disadvantages have been explained in detail. Whenever you want to invest in stock SIP, keep these things in mind. It is very important to have information about the market. Along with this, it is also necessary for you to know its terms and conditions. Choose stock SIP with your understanding and wisdom of the market. Taking advice from a stock market expert can be a wise decision.
Stock SIP is a very simple, disciplined and long term investment method. Through which you can create a large capital by making small investments. It protects you from the risks of market timing and gives you benefits like rupee cost averaging. There is a possibility of loss if you do not choose the right company.
Stock SIP investment provides you a better option but you can succeed in it only if you have a basic understanding of the stock market and you are willing to invest regularly. Right information, patience and better discipline play an important role in your financial growth.
Read also:- How to withdraw SIP amounthttps://imhoro.com/how-to-withdraw-sip-amount/
