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How to Invest in Stock SIP?

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Stock SIP is an investment strategy that is rooted in regular, fixed and consistent investments in a particular stock that is assessed to grow in the long-term. Stock SIP has potential for high-return but also prone to high risk compared to some other forms of investments.

Read on to know the meaning of Stock SIP, strategies to choose the right stock and how to invest in Stock SIP.

What is Stock?

A stock is a unit of ownership in a company which is traded - sold and bought - on a stock market. The sale and purchase of stocks take place when companies require additional funds to run or expand their operations and they sell a part of ownership of the company through sale of stocks. Those who purchase the stocks are referred to as stockholders or shareholders.

Investing in stocks offers various benefits to a stockholder including dividend payments generated from the company’s profit and capital appreciation when the company’s stock price goes up. However, the investor is also exposed to the risk of capital depreciation in case the company’s stock price plummets.

What is Stock SIP?

A stock SIP, or systematic investment plan, is an investment method that lets an investor invest in stocks of a particular company at regular predetermined intervals. These fixed investments can be made on a daily, weekly, or monthly basis, or even quarterly or annual basis. This investment plan requires discipline and patience and is mainly feasible for those with a long-term investment objective.

The benefits of investing in stock SIP is that the investment entry is easy and does not require lump sum amounts, the dividends are added to the investment which creates a compounding effect, and the chances of higher returns exist. The risks associated with stock SIP, however, are significant and impact of market fluctuations and volatility can result in losses.

Difference Between Stock SIP and Stock

Stock SIP and stocks are two different concepts as stock SIP is an investment plan or a method while stocks are an investment product. Here is more about the differences between Stock SIP and stocks.

 

Stock SIP

Stocks

Definition

Stock SIP refers to an investment plan which lets an investor purchase stocks through regular, fixed and consistent payments.

Stock is a security that represents ownership of a fraction of a company.

Selection

The criteria to select a stock SIP includes payment interval, payment amount, projection about the stock, and investment objective.

The criteria to select a stock depends on the company’s past records and current conditions, global and domestic events, and the risk tolerance of the investor.

Types

The various types of Stock SIP are regular SIP (which is a regular SIP), top-up SIP (which lets investors to increase their investment amounts), Flexible SIP (which lets the investor to increase or decrease their investment amount), and Perpetual SIP (which is a SIP without an end date)

There are several dozen types and classes of stocks, which includes Common Stocks, Penny Stocks, Value Stocks, IPO Stocks, Large-cap stocks, Mid-cap stocks, Small-cap stocks, Hybrid Stocks, etc.

Strategies to Choose the Right Stocks SIP

Choosing the right Stock SIP is the crucial part of how to invest in stock SIP. The right stock SIP for you is the one that meets your investment objectives and which matches your financial obligations and risk tolerance. You must be careful when selecting the stock SIP and thoroughly research the particular stock in which you want to invest.

You should explore the companies on the basis of their business model, mid-term and long-term growth, and competitive advantage. You should also compare the different plans and see which fits your financial obligations and investment objectives.

Also, you should pick a stock which is reasonably priced so that it has not reached its highs and therefore not be prone to fall. Keep this thing in mind that stock SIP is profitable only when the commitment is for long-term, so make sure your investment objectives are in line with your financial obligations when signing up for a stock SIP.

Factors to Consider When Investing in Stocks SIP

Another key aspect of how to invest in Stock SIP is to know and understand the factors which should be considered when investing in stock SIP.

  • Know Your Investment Strategy: You should be sure about your investment strategy and accordingly invest in stock which matches your strategy. You can pick that stock which is undervalued and expect profit when its gains value or you can invest in a stock which has a history of exceptional growth.
  • Check Stock Fundamentals: You must carefully examine the fundamentals of a stock before investing in that stock SIP. Some important data to consider is Market cap, Price to Earning Ratio, and Debt to Equity Ratio.
  • Revenue Growth: By monitoring the revenue growth of a company, you can create an impression about its stability and future performance.
  • Volatility: Stocks that are volatile will rise rapidly on a good trading day but fall as quickly on a bad trading day. Since your investment in Stock SIP is mid-term or long-term, you should look for stocks which are stable and consistent in growth.

Steps How to Invest in Stock SIP

Now that you know much about stocks and the stock SIP, let us explore the common steps that show how to invest in stock SIP.

  • Set your investment objective: Setting up a well-defined investment objective will provide you focus and clarity about what you are about to do. It will also help you determine your risk appetite, financial goals and time horizon of your investment.
  • Keep your documents ready: The next step in the process is to keep your essential documents handy. The documents that would be needed include proof of identity, proof of residence, PAN card, and bank details.
  • Register: The key step now is to register for the SIP which can be done online by visiting the website or app of a broker or asset management company. As part of the registration, you will have to create an account.
  • Choose the stock: Once the account is created, you will now have to choose the stock in which you want to invest.
  • Choose SIP amount and frequency: Now you will have to select the SIP amount and the periodicity of investment.
  • Mandate Auto-debit: You will now have to mandate an auto-debit facility so the amount will be automatically deducted on the due date from your account and invested in the stock.
  • Submit: Now you are required to click the submit button which completes the process.

Risks Involved in Stock SIP Investments

It is important to learn and understand the risks involved in investing in stock SIP. Before going into the details of these, you must remember that stock SIP is not an investment product in itself, rather it is an investment strategy or method. The product here remains the selected stock, which is prone to the usual market risks and fluctuations.

Volatility

Like most of the other investments, stock SIPs are impacted by the fluctuations in the market and your investment is exposed to market volatility.

Inflexible

There is almost no going back or changing the course once you have signed up for Stock SIP. This inflexibility can become a cause of concern during financial exigencies.

No guarantee

Since Stock SIP has the potential of providing high returns though it comes with loads of risks. There is even no sureshot guarantee of a profit if the investment is not properly managed. Investing in Stock SIP for a short-term may not be the ideal strategy.

Conclusion

As this sums up how to invest in stock SIP, a crucial reminder remains that you must thoroughly understand the process of investment and learn about the risks associated with it. You must also be clear about your investment goals and objectives as it will provide you stability in your investment journey and prevent you from making any rash decisions.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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Frequently Asked Questions

How to invest in stock SIP?

Answer Field

Investing in stock SIP is an easy process. All you need to do is select a stock that fits your investment objectives and then sign for a stock SIP.

What are the benefits of investing in stocks via SIP?

Answer Field

The key benefits of investing in stocks via SIP are that the investment entry is easy, the dividends are added to the investment which creates a compounding effect, and the chances of higher returns exist.

How do I choose stocks for my SIP?

Answer Field

You should choose a stock based on your investment strategy, time horizon of your investment, fundamentals of the stocks, revenue and growth history of the particular company, and your risk tolerance.

Can I start a stock SIP with a small investment?

Answer Field

Yes, a stock SIP can be started with a small investment. 

Are there any risks associated with stock SIP?

Answer Field

The significant risks associated with Stock SIP include impact of market fluctuations and volatility that can result in losses, and that there is no guarantee of returns.

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