I must have been living in a cave for discovering that there is something known as Equity SIP only today. I came across through the term while going through the feeds today and i wondered if Equity SIPs are the latest addition to the plethora of equity related instruments already available for investors. Evidently not. I searched for mentions of Equity SIPs and figured that ICICI Direct among others has been already offering them for sometime now.
I have been a fan of Mutual Fund SIPs and figured it will be interesting to discuss the nuances of Equity SIPs too
How does an Equity SIP work?
I have not found too many details on the same but the basic premise is very similar to Mutual Fund SIPs, only that instead of investing in Mutual Funds you invest directly in stocks. Brokerages (ICICI Direct etc.) recommend a few stocks to investors depending on their risk appetite. Investors (you and me) invest a specified amount in each of these stocks every month till a particular target is achieved.Investors (you and me) have the option of exiting once the target is achieved
This is what i found through various sources. Again, the brokerage houses can provide various options including,
- Amount based equity SIP wherein a fixed amount (or approximately the same) is invested in the desired stock at intervals ( This does follow the exact SIP approach wherein the amount invested remains almost constant but the quantity of stock purchased at every interval might vary)
- Quantity based equity SIP is a SIP type wherein a fixed quantity of desired stock is bought at regular intervals (I fail to understand this mode since the investment amount can vary drastically during these intervals. How do i as a investor put a cap on the maximum investment i want to make)
My understanding is still very limited on Equity SIPs but from a superficial level, it looks more like a desperation move from brokerage houses rather then being an interesting option for investors. Brokerage houses are akin to the retail investor’s skepticism about investing in Equity markets. They are trying to provide an option of disciplined investing in equity markets and hoping to improve the attractiveness of Equity markets for retail investors
Here’s what i don’t understand about Equity SIPs,
If the stock suggested to me starts sliding after the 1st month of subscription, do i get an option to exit/switch or i will be forced to continue investing for so called value averaging?
Have you invested in Equity SIPs and if you have, how has been your experience of the same? It would be great to get some first hand thoughts on Equity SIPs to develop a better understanding of the product