Navigating market turmoil, with minimum investment rules and easy exits, attracts retail investors.
During these times of market volatility, broking firms have taken a leaf out of the books of mutual funds (MFs). They are now offering retail investors, an equity systematic investment plan (SIP), similar to SIPs offered by MF houses.
The latest to do so is Reliance Securities, which launched the Regular Stock Purchase (RSP) plan last week. Other firms offering similar products include Geojit BNP Parib as Financial Services, Kotak Securities, HDFC Securities, ICICI Securities, Motilal Oswal Financial Services and IIFL.
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According to Naveen Bachwani, senior vice president at Motilal Oswal Financial Services, the trend for equity SIP is catching. “A majority of our 2,500-plus clients who invest through the SIP route do so in equity SIPs, rather than the mutual fund SIPs we offer,” he says.
Like an MF, equity SIPs work on the same cost-averaging principle and inculcate discipline in nvestors. Through this route, an individual can either invest a specific amount in chosen stocks at pre-decided intervals or buy a specific quantity of stocks each time. The former choice of a minimum investment amount is stipulated by each brokerage, varying across players. For instance, Motilal Oswal pegs the amount at Rs 2,000; for IIFL, it is Rs 5,000. There is, typically, no ceiling on the maximum amount that can be invested each month.
Alternatively, investors choosing the quantity-based option can buy a specific number of stocks in each tranche. Only the amount of investment you need to make may vary each time, depending on the stock price at that time. So, say you decide to buy five stocks of Company X each month. If the price of the stock this month is Rs 1,000, you will spend Rs 5,000. Next month, if the price drops drastically to Rs 500, you will end by investing just Rs 2,500.
You can decide the frequency of the stock purchase — daily, weekly, fortnightly or monthly. And, the period for which you plan to invest through SIP. Under the RSP plan offered by Reliance Securities, investors can invest up to three years at one go. Then, the agreement must be renewed.
The option is high on liquidity, too. Investors can sell their stocks at any point, though it is not advisable, especially if one has purchased the stocks from a long-term perspective. An exit load is also not levied for premature exits, unlike MFs, where an exit within a year is usually penalised. The broking charges typically depend on the deal you have struck with your brokerage. It can vary at 0.05-0.50 per cent, charged per transaction (buying as well as selling). The brokerage is in line with that charged for regular delivery-based trades.
While the equity SIP option works almost exactly like MFs, there is one major difference, In MFs, you don’t have to pick individual stocks. “Based on one’s risk profile, one can pick the scheme category and take exposure to a multitude of stocks through a limited amount. That is not possible in the case of equity SIPs,” says Malhar Majumder, a certified financial planner. Investors need to understand the nuances of the markets and be able to identify high-performing stocks before taking the plunge.
Besides, the universe of stocks and exchange traded funds (ETFs) available for picking from may be restricted. For instance, Reliance Securities’ RSP plan allows investors to choose from 263 stocks and 17 ETFs. One may argue that this is sufficient, as it covers the blue-chip scrips. However, this may not be suited for an aggressive investor, who may want to take exposure to mid-cap and small-cap schemes and gain from the fund manager’s expertise on profiting from the momentum in these stocks.
