Should you opt for SIPs in stocks?

We are all familiar with the SIPs in the mutual funds. They allow you to stagger your investments in the stock markets and let you benefit from the market volatility. Now brokerages have also started offering SIPs in direct stocks in the direct equities on the similar lines. But are these SIPs safe? Should you go for them? Well, here is a low down on these SIPs.

These SIPs like those of the mutual funds, let you buy stocks in small amounts. This can be very good strategy in case of expensive stocks like BHEL of Infosys. Now if the market crashes at the time of your SIP installment date, you can buy more stocks of these companies. So the returns you earn in this way are much higher than what you would normally earn by making a lump sum investment in the stocks.

But the problem arises if the market goes up drastically. In case of mutual funds, it won’t make much difference. But in case of direct equities the price of a stock can go as high as Rs 100-200 within a month. This will affect your investments as you will get smaller number of shares in this instance.

Also your stock selection should be perfect. If you  had opted for SIP in stocks like RCom or DLF, you would have lost money. Hence it is essential for you to be aware of the fundamentals of the stock.

Lastly, it is costlier to go for SIP in stocks as you have to pay brokerage on each purchase. Besides you also have to pay for the demat charges. Hence you should be very careful when going for SIPs in direct equities.

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Laxmi Kasbekar

Laxmi Kasbekar is a freelance finance writer based in Mumbai. She also offers guidance on investment and financial planning in order to help you achieve your financial goals.

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