Buy Stocks through SIP Avoid Risk Associated with Market Volatility

  
 

Given the dubious and ever volatile nature of stock markets, people have an intrinsic fear to participate in equity markets. Investing in other safer products is the solution they have relied upon. However, the attractive amount of returns given by equities in the past cannot be ignored.

Equity markets tend to fluctuate every so often due to various concerns over both domestic and global economic conditions. At times, the market seems to be stable and improving, but then in no time turns the other way again. If you are worried about the impact of such possible volatility of equity markets on your investment, an effective way to minimize this risk is by investing in equities through systematic investment plans or SIPs as they are popularly called.

SIP in stocks is an extremely useful method that allows you to invest pre-decided amount in a set of stocks or exchange-traded funds at regular intervals. Unlike Mutual Fund SIPs, you can invest directly in your favorite companies by starting SIP in stocks.

Though the smart way to trade in equities is to buy low and sell high, most of the investors end up buying when the valuation of stocks is high and sell when valuations start declining. Stock SIPs help you avoid this common mistake in stock trading. It helps you stay invested consistently and beat market volatility by averaging out the costs.

Salient features of Stock SIP –

• Conditions to start Equity SIP: Investors should have a demat account and a trading account with a brokerage firm.

• Listing of Scrips: When doing SIP in stocks, investors choose and list down the stocks and ETFs in which they want to invest. Typically a broker specifies the maximum number of scrips to be chosen to create a bucket and the investment amount is allocated to the final bucket of stocks.

Deciding date and amount: Investors can choose any trigger date for the SIP. The investment is made in the chosen bucket of stocks on this fixed date at regular intervals.

• Frequency of SIP: Like mutual fund SIPs, in stock SIPs too, investors can choose the frequency of the installments - weekly, fortnightly or monthly.

• Purchasing of shares: The shares are bought at the prevailing market rate at the time of SIP.

Key benefits of Investing Systematically in Stocks –

Disciplined Investment: With SIP, you can have a disciplined investment plan that helps you invest irrespective of the market conditions and reduce vulnerability to market fluctuations.

• No lump-sum investment: An SIP lets you chose the frequency of the instalment to be paid and free you from a one-time lump sum investment.

• Forget timing the markets: Equity SIP is an investment method that helps you avoid the risk of timing the markets and reduces the risks associated with it.

While investing in stocks through SIP helps investors to stay unaffected during market volatility, adding high dividend yielding stocks in your scrips bucket would make it even more gainful. However, you should keep in mind that if stocks which you have chosen to invest are not fundamentally sound, there are possibilities that they might harm your investment goal.

Putting money in ‘A’ grade companies and dividend-yield stocks is considered a safer investment strategy, especially now when markets are exposed to events & conditions the outcome of which is not easily predictable. According to experts, investors should go for those dividend-yield companies which have a strong dividend-paying history and sound fundamentals but which are not fully factored. There are many companies which reward their shareholders consistently with attractive dividends. Moreover, dividends are tax-free in nature and in turn give you the opportunity to invest the amount received in other potential stocks.

In a stock SIP, investors must make selection of stocks based on the fundamentals of a company so that even if the market or the company stock slumps, you as an investor would not have to be concerned if you have chosen a list of quality stocks in your kitty.

Now that you are well informed about stock SIPs, do not be apprehensive. Just participate in the equity markets directly through the SIP route and join the high-growth bandwagon.

Disclaimer:

Views as are mentioned in the article are personal views of Author and are not necessarily the views of the Company, its Director and Employees who are in no way connected to these views.

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