Now, the question arises as to how can one safeguard their
money from market volatility? The answer lies in Systematic Investment Plans in
Equity.
Now-a-days, with the effect of rising inflation, the
importance of money is increasing day by day. Money has become the first
priority in everyone’s life as it is needed in various stages of life at any
time. In this expensive world, it is unwise to keep money idle. So, the
need is to make money from the money we have which can be achieved by making
the right investments. Though the equity market gives good returns, it is
highly volatile due to its constant rise and fall. Now, the question arises as
to how can one safeguard their money from market volatility? The answer lies in
Systematic Investment Plans in Equity.
What are SIPs?
The Systematic Investment Plan (SIP) is a simple plan to
increase wealth over a long period of time in a disciplined manner. It
allows us to invest in the stock market by way of mutual funds so that you can
beat the ups and downs in the market by averaging your cost and diversifying
across sectors. Equity SIPs of different amounts and time periods are offered
by many brokers like ICICI Direct, HDFC securities, Reliance Securities , Kotak
Securities , Geojit BNP Paribas Financial Services , Motilal Oswal Financial
Services and IIFL.
Who can deal in the Equity market?
Anyone can enter the equity market and build their own
portfolio through DIY-SIP in equities, a product offered by HDFC securities.
DIY SIP stands for Do It Yourself Systematic Investment Plan. Another option is
the Reliance Securities of the Anil Ambani group introduced RSP (Research Stock
Purchase). DIY-SIP allows the customers to enter in the market with small
investments. It provides a systematic way to gain direct exposure in the equity
markets. ICICI started the new concept of equity SIPs on the lines of mutual
funds. It invests a fixed amount every month or invests in a fixed number of stocks
daily where one can invest in any blue chip funds or Exchange Traded Fund
(ETF).
About Blue Chip Funds
Blue chip value funds provide updates on monthly holdings on
or around the 15th of each month .There are several ways to invest in Blue Chip
Funds. Shares can directly be acquired by the investors through a broker, a
direct stock purchase plan or a dividend investment plan. The best way is to
invest in the ‘Diamonds’. Diamonds are the investment instrument traded on the
American Stock Exchange. As Diamonds have the dual advantage of low expense
ratio as well as tax efficiency, they are preferable over blue chips mutual
fund. Diamonds are most efficient as they are traded on an exchange.
Investing Do’s and Don’ts
When one is investing in the market, they should first
analyze the market.
While investing, one should keep some amount aside as a
reserve.
People should invest in small sums and must diversify their
investments. One should never keep all eggs in a single basket.
Investing in small amount is also helpful as then, in case
of a loss, the amount can be recovered easily.
Equity SIP is a method by which customers have the option to
invest their funds at a particular fixed frequency of time. It allows
systematic investment in a disciplined way.
SIPs generate returns over a long period of time; they do
not give results immediately. One has to be patient while investing in SIPs and
be prepared to give it some time to fructify.
When the market is high you should buy less number of
shares, and when the market is low you should buy more number of shares. Get
the benefits compounded over a period of time.
Money should always be in routed form. This means that if
you are investing some amount than you should also get some returns on it, in
other words, you should assess your Return on Investment or ROI. There should
be a money life cycle.
With Equity Systematic Investment Plan, it is a customer’s
choice to invest at specified frequencies which may be daily, weekly or
monthly. You need to vary only the amount of the investment every time you buy
the stocks, depending on the stock price in the market. One should invest more
when the market is down and should sell it when the market is up so that lesser
investment can earn you more returns. Investment can be done in various means
like in gold, shares, debt instruments or a combination. The amount to be
invested can be transferred through a cheque or online from your account.
Why should one choose Equity Systematic Investment
Plans?
It allows you to buy shares, gold etc. at low rate and well
spaced out intervals and sell them when the rates are high. There is a lock-in
period of SIP’s of 3 years after which one can choose to stay invested in the
SIP or cash out. One mistake committed by many investors is that they buy
shares at high rates and sell them when the market is going down. Equity SIP
enables one to avoid this mistake.
Equity SIPs also help one by avoiding the risk of buying
shares at high rates. Many a time, it may be possible that for certain period
of time, the market is moving down. At this time you should not get panicked
and cash out of your investments. You must continue your investment through
Equity SIPs and give them some time to bear fruit. Equity Systematic
Investment Plans are meant for long term investors. Moreover, the choice of the
stock should be made based on the fundamentals of the company.
Equity SIPs are extremely beneficial for those who do not
know when to enter and exit the market. With the help of Rupee cost averaging,
one tends to invest a fixed sum and not in a fixed number of shares. This
practice works more often than not for investors. Also, through Equity SIPs,
there is no need to pay extra charges for buying shares. However, one must
understand that everything does have a flip side and in this case, the
disadvantage is that equity SIPs being market linked instruments, the risk involved
is also substantial.
When anyone invests in Equity SIPs, no additional cost is
applicable other than the charges of the regular brokerage and the cost for
maintaining an account to hold shares in electronic format.
Equity SIP works almost like Mutual Funds (MFs). Broking
charges vary depending on the investors; they must understand the market and
then invest. Today, some Asset Management Companies (AMCs) or mutual fund
houses also provide the ease and convenience of transacting games.
They have set up their online transactions platforms, where one can invest in
SIPs through IPIN (Internet Personal Identification Number). For a person
investing in the market, the necessary condition is that they should be
patient. One must understand that they have to stand their ground during market
swings. Sometimes, the market may see a major correction. During such
situations, an investor should try and buy shares so that the loss in previous
investments gets adjusted. When the market rises again, one can sell the shares
and book profits. If a person invests in a wrong instrument, he should exit it
as soon as possible. With the amount earned, he can buy another product after
conducting his research.
Equity SIPs helps one to gradually increase their wealth by
investing small amount of money regularly, over a long period of time.
Source: http://www.indiainfoline.com/Markets/News/Are-equity-systematic-investment-plans-worth-it/5280956296
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