 "Markets at all time highs: Opt for direct equity investment through SIPs")
The market is hovering near all time highs, but the road ahead is likely to be volatile. This can be a nerve-wracking time for investors, who are keen to invest directly in stocks. Equity SIPs, or systematic investment plans, can be a good option for such investors.
Equity SIPs are offered by some leading brokers such as IIFL, Kotak Securities and ICICI Securities. They are similar to SIPs in MFs, except that here the investment is directly in stocks. SIPs work on rupee cost averaging, which helps reduce the average cost per share over time. So equity SIPs might prove useful in mitigating the risk of market volatility and the risk that comes with timing the market.
Some brokers offer ready-made baskets. For instance, IIFL offers two options for investors: conservative and aggressive. The conservative basket invests in five large cap stocks, while the aggressive option consists of one or two large-caps and three to four mid-cap stocks. Kotak Securities, on the other hand, offers three baskets, each containing 10 stocks each. The options offered are aggressive, moderate and conservative.
Investors choosing these baskets get regular research reports on the stocks and are informed if any of the stocks hit the price target. Except regular brokerage, there are no extra charges for availing this service, said brokers.
A few brokers also allow investors to construct their own portfolio and commit a certain amount every month. Investors can decide on the number of stocks they can include in their portfolio as well as the SIP amount. However, the choice of stocks is typically restricted to the top 100 stocks by market capitalisation.
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“It is better to select a ready-made basket than select stocks on your own as you may not be able to handle market volatility,” said Hemant Rustagi, CEO, WiseInvest Advisors. The next thing is to look at the basket offered and assess whether the portfolio is right for you. “You need to understand the risks involved. Are you getting enough diversification with the basket? For example, a portfolio of five stocks means a 20% concentration risk,” said Rustagi.
Those opting to invest directly should restrict their portfolio to seven to 10 stocks, feel experts. “First, you won't be able to track more than 10-12 stocks and secondly, if you want to include 30-40 stocks, you would be better off buying an index ETF rather than picking individual stocks,” said Rahul Rege, business head – retail, Emkay Global Financial Services.
“My advice is stick to the top 100 stocks and keep a five year horizon. Look at stocks within sectors that are closer to the economy and will likely benefit if growth picks up,” said B Gopkumar, head – broking, Kotak Securities.