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Even though SIPs (full form of sip in stock market is systematic investment plans) are a widely used coined term to invest in mutual funds, do you know that it is possible to SIP in equities too? Stock SIP as the term suggests is an investing style where specific company shares are bought at regular intervals. This, in turn, helps in smoothing out the market conditions, as the cost of buying the company shares is spread out over a period of time. For those interested in investing directly in stocks, this guide will take you through the process of setting up a stock SIP and provide insight into how it compares to a mutual fund SIP.
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What is SIP in Stock?
When applied to stocks, SIP allows investors to buy a fixed number of shares or invest a fixed amount in a company’s stock at regular intervals. This disciplined approach enables investors to accumulate shares over time while mitigating the risks of timing the market.
Investing in stocks through SIP has been gaining traction, especially for those who prefer building a portfolio of individual stocks rather than mutual funds. The best stock for SIP investment depends on your financial goals, risk appetite, and market research. Some prefer large-cap stocks for their stability, while others opt for mid-cap or small-cap stocks for growth potential. However, thorough research and regular monitoring are essential to ensure the stock SIP aligns with your investment goals.
A Step-by-Step Guide
Step 1: Select the Best Stock for SIP Investment
This is one of the most important steps in stock SIP investment–picking the stocks you want to invest. The decision-making procedure is quite complicated. The analysis, evaluation, and consideration of the company’s financial history, future growth, the market, and the industry in general are crucial when finding the best stock for SIP investment.
Such stocks, primarily those belonging to old and trusted companies with sustained improvement in their overall performance, may be better suited for novice investors. These stocks are less subject to sharp changes in price, rendering them a better fit for a systematic investment plan. In addition, there is a need for diversification, that is investing in several stocks in different sectors to mitigate risks.
Step 2: Determine the Investment Amount and Frequency
After selecting the stocks, the next step is to decide how much you want to invest and how often. Most investors set up stock SIPs by either choosing a fixed amount to invest regularly or opting for a specific number of shares to purchase periodically.
For instance, if you plan to invest ₹5,000 per month, you can set this as the investment amount in your stock SIP. Similarly, if you wish to purchase ten shares of a company every month, you can set this as the frequency. Platforms like the Share India platform allow you to automate these investments, making it a hassle-free experience.
Step 3: Understand How Does Stock SIP Work
A critical question many investors ask is: how does stock SIP work? Stock SIP works similarly to mutual fund SIP but focuses on individual stocks rather than a pool of funds. Once you set up your stock SIP, the investment platform will automatically buy the shares at regular intervals. This approach allows you to accumulate stocks over time, averaging the purchase price.
The benefit of this strategy is that it helps you avoid the common pitfalls of trying to time the market. By consistently investing in stocks regardless of market conditions, you may end up paying less on average for shares over time.
Step 4: Track and Review Your SIP in Stock
After the setup of the stock SIP, it is advised to continuously check and evaluate your investment. Track the performance of the stocks you invested in and the stock market as a whole. While SIP in stock can be beneficial in the ups and downs of the market to some extent. It will also be important in assessing the stock fundamentals and the macro outlook, whether those positions are still relevant to your objectives over time.
Moreover, it’s important to periodically review your financial goals and risk tolerance. Thereafter, modify your SIP investments, if there is a need. Under a stock SIP, there is scope for modification, which includes enhancement in the proportion of investment or alteration of the stocks that one has in the portfolio.
Stock SIP Vs Mutual Fund SIP: Key Differences
One of the common questions is: stock SIP or mutual fund SIP which is beneficial? Both approaches have the same end objective of facilitating investments on a regular basis but their use is different.
- Stock SIP: Here the investment is done for individual company shares. It’s more passive as active participation is required, given that the investment is in the stock market directly. It helps in choosing a basket of specific shares creating opportunities for investing in different target stocks.
- Mutual Fund SIP: Here the investors put their resources in a fund, which is managed by a fund manager. It is less labour-intensive and more diversified as mutual funds invest in various stocks, bonds, or other securities.
The choice between the two depends on the investment aspirations, risk appetite, and the level of participation requested. Stock SIPs are likely to be taken up by investors who enjoy portfolio management and control, while mutual fund SIPs are likely to be taken up by investors with a more passive investment management strategy.Summarising, it may be said that starting a SIP in stocks can be an effective way to build wealth gradually while mitigating the risks of market volatility. By following a disciplined investment approach, selecting the best stocks for SIP investment, and utilising a reliable platform, you can set yourself up for long-term financial success. Whether you are new to investing or an experienced trader, stock SIP offers a flexible and structured way to invest in the stock market.