SIP: IS IT POSSIBLE IN STOCKS TOO?
SIP, Systematic Investment Plan is one plan in which a uniform amount is invested in Mutual Funds. For this the investor has
to choose a specific amount, specific scheme and specific date. Through systematic investment plan the cost gets averaged and after a long period say 2 or three years the amount you invested will be seen with good returns.
You may all wonder how it is possible. Let us take an example. Mr.Srikant invested Rs.1000/-, for three years. If he wants to redeem his amount of total investment, he has to get back Rs.36000/-, subject to market conditions are not so volatile. There is always a chance of appreciation for his investment upto 10% to 20%, as he invested his money through SIP. Let us see how it happens. Srikant paid Rs.1000/- every month. On the first day, he got 50 units at the rate of Rs.20/-. In the second month, the market is down and the each unit is quoting at Rs.18 and for his investment amount of Rs.1000 Srikant got 55.55 units. On the third month the market rate of the unit is 18.50 and Srikant got 54.05(1000/18.50). So finally, the market is in a bullish trend and Srikant got his investment back with an additional income of Rs.7000/-.
This is the advantage of SIP and your investment is averaged and due to this, you could get good benefits. Normally, SIP is advised for longer term, like three years and above, as the markets see many ups and downs. The systematic investment plan can also be withdrawn when you make good profits before the actual closing date of the period also.
Coming to our point, ie., Is SIP possible in stocks also? The answer is yes! In mutual funds, you have to select a good scheme and start SIP. In stocks, you have to choose the stock you want to invest in, It depends on the amount you want to invest monthly. If you want to invest Rs.1000/- a month, the stock you should choose should be as small as it can be but should also not be a penny stock(the stocks which are played and marketed by the operators and brokers, in which normally, innocent investors are stranded and lost}. As the price of the stock we wish to invest in is small one, we should not also go for a stock of company which has no fundamentals. We should have some homework on the company's balance sheet, profit and loss account, book orders, etc.,
Also we have to see that the stock should not be a volatile stock. Some times due to the operators' play, good stocks also see sharp volatility, which makes its price always uneven, very much deviating from its original value. We also have to see that the stock is preferably a blue chip. Blue chip means the stocks which have good reputation regarding its promotors, its dividend history, its returns to investors over past few years, its growth etc., Sometimes, we may notice this stock is going to be a bluechip in future. Those stocks can also be selected for SIP.
After the selection of stock, you have to choose a date for the SIP. Choose the date which is convenient for you, and start investing in the stock with a uniform amount, periodically. If you think that the stock is worthy to be bought more, you can reduce your timeframe and add more to your investment, as this SIP is created by yourself!
So, what are you waiting for? Go and pick a stock through SIP!
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