Systematic Investment Plan (SIP)
remains a popular and successful method of investment in Mutual Funds
for long term investors.In fact SIP is the best method for you to invest in mutual funds if you have decided to invest in markets.
SIP allows you to invest in markets in a systematic way in small baby steps without bothering about the short term markets moves.It brings a much needed discipline towards your investment.
Taking inspiration from the success of SIPs, the leading stock brokers have started providing similar option to investors for investing in shares or stocks directly rather than the Mutual Funds.
This option allows you to buy stocks in a systematic and regular way at regular intervals with small amounts rather than buying in lump sum amounts in a single purchase.This option is known as Equity Systematic Investment Plan ( ESIP ) or Systematic Equity Plan ( SEP ).
We very well know about the risks associated with investing in stock market.To keep that risk at minimum,we wish to buy the securities at lowest possible price level so that market downfall if comes any in future,doesn’t pile up losses on us.
In an attempt to apply this logic,most of us are left waiting and waiting.This is because we never know what is the bottom for the market below which market may not fall.If we could,we would be happy to buy at that price level.
This intention of our is like trying to time the markets.You need to keep in mind that timing the markets is never a good idea.It is very rare that someone has timed the markets accurately.This may be more of a luck than a skill if someone timed the markets perfectly.So your attention should be towards investing rather than timing the markets unless you are a trader.
An investor trying to time the markets keeps on waiting for optimum levels on the market to enter.He may or may not get his desired optimum level to buy the stock.
Most of the times it has happened that markets just fly away without reaching those optimum levels and the investor left in grudges that he should have bought at available prices.On the other hand,if he gets his desired levels and buy the stock but the market keeps on sliding lower,that would throw the shivers through his body.
ESIP or SEPs help to remove these hindrances in the path of investment of an Investor.
This plan works similar to the SIP
except that in ESIP you opt to buy your chosen stock in a predefined quantity or amount after a predefined time interval instead of buying Units (Read more about Net Asset Value or NAV
) of Mutual Fund Schemes in a SIP.ESIP may be really the best method of investing in shares for you.
When investing via ESIP,you choose a stock you want to invest in.Then you have to choose the option for buying the stock.You can select ‘Quantity’ or ‘Amount’ based option.In Quantity option,you choose the number of stocks of a company you want to buy on the day of order placement.In Amount based option,you fix the maximum amount for which you want to buy the stocks of a particular company.
Suppose you chose to invest ₹ 1000 per month for a stock trading at ₹ 125 on the day of order placement,you would be getting 8 stocks.If the same stock is trading at ₹ 130,you end up getting 7 stocks and the amount invested is ₹ 910 + brokerage charges.
Best way to invest is to keep your investment amount fixed rather than going for Quantity based option.Amount based options helps in averaging down your buying price more effectively.
Next,you need to choose the frequency for ESIP order placement.You have options for Daily,Weekly,Fortnightly and Monthly investment.You would be asked to choose the time period for which you are willing to continue with ESIP.Currently you may get maximum time duration of 24 months or 2 years.Last step is to choose the Date of ESIP order placement.You can choose any Date you are comfortable with and your ESIP request is placed.
By opting for ESIP,you remove the need to time the market.You keep on buying a stock irrespective of price fluctuations and over a time period,you see that your buying price gets averaged.Sharp market movements don’t impact you and your portfolio much.
Moreover,your investment starts without waiting for the market correction for optimum price level.Just allocate the capital you want to invest,choose a good stock with strong fundamentals and select the quantity and time interval and start investing regularly.
So check out with your stock broker for ESIP option availability and start investing in shares of your choice.Build a portfolio of blue chip stocks in a systematic way to reap the rewards of market moves over the longer periods of time.
Never bother about ups or downs in the markets,just stick to your investment.Even if you don’t get ESIP option in your Demat account,you can always do that manually by yourself.ESIP options just make it easy due to automatic order placement.