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What is a stock SIP? Should you have one?

This article explains the concept of the stock SIP that allows you to buy shares automatically on a regular basis.

What is a stock SIP? Should you have one?


Posted on 22 Nov 2023
Author: Sayan Sircar
Tags: Tags Portfolio Construction
3 mins read
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This article explains the concept of the stock SIP that allows you to buy shares automatically on a regular basis.

What is a stock SIP? Should you have one?

šŸ“š Topics covered:

What is a stock SIP?

SIP SWP and STP

All of these are standing instructions that get executed as per a schedule you specify:

  • Systematic Investment Plan (SIP): Money from a bank account is invested into a mutual fund, typically once a month
  • Systematic Transfer Plan (SIP): Units from a mutual fund are redeemed to invest in another mutual fund of the same AMC
  • Systematic Withdrawal Plan (SWP): This is the reverse of the SIP. You sell the units from a mutual fund to send money to a bank account

Note: You donā€™t invest in a SIP; you invest via one since a SIP is a standing instruction. You invest in a mutual fund, or basket of stocks, via a SIP.

In the image above, you can replace the mutual fund with a single or a basket of stocks that you choose and that will become a stock SIP.

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What are the benefits of having a stock SIP?

A stock SIP gives the same benefits of a SIP in Mutual funds i.e. regular automated investment that ties in with the frequency of your income from salary. Unlike the usual sporadic investment pattern of stock investing, the concept of the stock SIP brings in discipline and regularity to direct equity investments.

A stock SIP should be used whenever you are accumulating a position in a core basket of stocks over time. For example, you are a direct equity investor who has a wish list of 10 ā€œcoreā€ stocks to accumulate over time, a stock SIP can be useful here.

If you are buying ETFs for long-term goals, like those tracking Nifty or Gold, then also a stock SIP will act just like a regular mutual fund SIP and serve the same purpose.


Goal-based-investing plan

Which brokers have a stock SIP?

Most major brokers in India have the stock SIP functionality. A simple Google search of ā€œbroker name stock SIPā€ will give you all details. Here is a tutorial from Zerodhaā€™s website:

Setting up a stock SIP

Image Ā©: Zerodha.com - https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/articles/kite-sip-order

The broker website will also have detailed FAQs on this topic.

How does a stock SIP work?

A stock SIP is a standing instruction to purchase stocks on a regular basis. These purchases are of two types:

  • a fixed number of stocks per transaction: here you specify how many shares you want like 10 shares of Infosys. The money deducted from your bank account will vary every time due to changes in the stock price
  • a fixed amount of money invested per transaction: here you specify how much you wish to invest say ā‚¹10,000/month in Infosys. Since shares can only be purchased in integer numbers, the highest number of shares that can be purchased with the amount will be placed as an order.

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Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself
OR
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.

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This post titled What is a stock SIP? Should you have one? first appeared on 22 Nov 2023 at https://arthgyaan.com


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