Afraid of market volatility? Invest in Systematic Equity Plan to balance risk
A stock SIP requires an ability to thoroughly understand the nature of a business and then evaluate the nature of the balance sheet. A futuristic view of how a company would fare in future is crucial.
While entering mutual funds via Systematic Investment Plan (SIP) has now become a common way, what is unusual is investing in equities via SIP.
Investing in equity markets is something which every investor want to but scared of loosing money due to market volatility. To such investors Systematic Equity Plan or SIP in stock come as a savior.
SIP in stocks or SEP is similar to SIP in mutual funds. In the mutual fund route, you invest a finite amount of money each period which is used to buy the mutual fund units on the day of the execution.
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In a similar way, when you SIP in the stock market, you have the ability to invest either a specific amount each time or the ability to buy a fixed number of shares on the trigger date.
A stock SIP requires an ability to thoroughly understand the nature of a business and then evaluate the nature of the balance sheet. A futuristic view of how a company would fare in future is crucial.
According to TheWeathWisher, SIP in stocks are for those who are looking for active money management in equities and want to be disciplined with their investing.
Unlike SIP in mutual funds, SEP is calculated based on XIRR or extended internal rate of return, which is a measure of return used when multiple investments (at different points in time) are made in a financial instrument.
Explaining the process with an example, MyInvestmentIdeas stated, for instance, you opt for Rs 5000 per month in say Bharti Airtel shares and approximately the share price of the company is Rs 300 per share.
Now, either you can buy 16 shares (Rs 5000/ Rs 300 per share) which will cost you around Rs 4,800 and will be within your fixed amount. Or, you can also opt for buying 16 shares directly irrespective of the price.
How to create SEP?
SEP or SIP in stocks can be created in just few clicks.
1. Create or Log in to your brokerage account
2. Create SEP for any selected stock
3. Select your option: fixed amount or fixed quantity
4. Select the date on which the SEP should be executed
You can also create multiple SEP for stocks in your account. Based on your requirement, the shares will be credited to your account by T +2 days like a normal share purchase transaction.