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What is a stock SIP? Should you have one?

Posted on 22 Nov 2023
Author: Sayan Sircar

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?

📚 Topics covered:

What is a stock SIP?
What are the benefits of having a stock SIP?
Which brokers have a stock SIP?
How does a stock SIP work?

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 don’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.

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 “core” 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.

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Which brokers have a stock SIP?

Most major brokers in India have the stock SIP functionality. A simple Google search of “broker name stock SIP” will give you all details. Here is a tutorial from Zerodha’s website:

Setting up a stock SIP

Image ©: 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 ₹10,000/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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