Company Shares - Systematic Investment Plan (SIPs)
After mutual funds, brokerages firms have introduced Systematic Investment Plan (SIPs) for company shares. This can be an attractive investment option, Reliance Securities and Geojit BNP Paribas have launched Systematic Investment Plans for equity holdings. Systematic Investment Plan (SIP) popularly called SIP works on the principle of regular and continues investments. It is like bank recurring deposit where you put in a small standard amount every month. Banks offer recurring deposits, and subsequently, mutual funds introduced Systematic Investment Plans (SIPs). Now stock brokers have introduced systematic investment in shares. It is an attractive model of investment, based on the rupee cost averaging or constant share purchase model. The investor has to select a share in the market and invest a fixed sum of money in its purchase every month/quarter (eg. Rs 10,000 per month). The number of shares actually bought would be rounded off to the lower limit to avoid fractional shares. Suppose if you buy one company shares , when the prices is high, if the market dips after that, the value of your investments falls and you may have to wait for the market to go up to make a gain on your investment. But, if you invest via a SIP, you do not buying shares when the market is at its peak. Since you are buying small amounts continuously, your investment will average out over a period of time. You will end up buying some shares at a high cost and some shares a lower price. Over time, your chances of making a profit are much higher when compared to a one-time investment. When a share's price is going up, rupee cost averaging would mean buying fewer shares and when the price is down, the reverse will be true. The investor would accumulate a large number of shares over the years. The portfolio value would thus grow along with the market value of the share. This would be useful for saving for the achieving one or more of your financial goals. Example of Shares SIP Investment and the rupee cost averaging
| | | SIP Investments | One Time Investment |
| Month | Share Price | Amount | Shares | Amount | Shares |
| 1-Jan | 135.00 | 5000.00 | 37 | 60,000 | 444 |
| 1-Feb | 112.00 | 5000.00 | 45 | | |
| 1-Mar | 128.00 | 5000.00 | 39 | | |
| 1-Apr | 107.00 | 5000.00 | 47 | | |
| 1-May | 101.00 | 5000.00 | 50 | | |
| 1-Jun | 111.00 | 5000.00 | 45 | | |
| 1-Jul | 118.00 | 5000.00 | 42 | | |
| 1-Aug | 114.00 | 5000.00 | 44 | | |
| 1-Sep | 121.00 | 5000.00 | 41 | | |
| 1-Oct | 130.00 | 5000.00 | 38 | | |
| 1-Nov | 106.00 | 5000.00 | 47 | | |
| 1-Dec | 105.00 | 5000.00 | 48 | | |
| | | 60000.00 | 523 | | |
As per the above example, SIP Investment the average purchase cost is Rs. 114.76 and one time investment is Rs. 135.00
Reliance Securities has its own SIP scheme known as 'Regular Stock Purchase Plan' or RSP Plan, which is a disciplined and easy way to invest in the equity market by making small, regular investments. The investments are in a prefixed amount or quantity of shares at defined intervals in shares of your choice for a fixed tenure. This is a systematic approach to build wealth over the years and the discipline relieves the investor of the risks and pressures of timing the market.
Reliance Securities has an alternative to the SIP/Rupee Cost Averaging option, the quantity-based RSP Plan. This is an RSP Plan type wherein a constant quantity of shares of a desired stock is purchased at each frequency. The quantity would be as specified by the investor and would be fixed, while orders would be placed as per the desired frequency. The order value would be based on the market price of the stock prevailing in the market at the time of order placement. The investor can place an RSP Plan request for a minimum quantity of a single share. This Plan is based on the constant share purchase model (CS-model), which has some popularity in the USA. It is useful for accumulating sizeable number of shares over the years in a good company shares
With the above options, an investor's portfolio will grow both in quantity of shares held and market price value over time-provided the share is chosen carefully and we don't fall into a prolonged bear market.
Prakash Nair
No comments:
Post a Comment