SIP in Stocks: What Is It and How It Is Different From SIP in Mutual Funds (2024)

Last Updated on May 24, 2022 by Anjali Chourasiya

The term Systematic Investment Plan (SIP) offers investors the option of investing a pocket-friendly amount of their savings on a regular basis, in an investment that offers market-linked returns. The small investment size makes it affordable, and it works by compounding money in such a way that you earn interest on the interest your investment earns.

This means, the interest earned from your first investment is added to the principal amount and that money earns interest, and so on, building into a large corpus given time in the market. Additionally, the forced instalment-basis of investment also instils investing discipline over the long term.

SIPs have witnessed tremendous popularity. Countless investors have found this mode of investing to be convenient, wherein a fixed amount of their savings is directly debited from their accounts at fixed intervals. SIPs automate investments.


Another reason for the popularity of SIPs is that investors also enjoy the fruits of rupee cost averaging. This means your fixed investment amount may fetch you lesser units of your investment product in some months when market prices are high, and when the market is in a correction phase, the fixed instalment may fetch more units. If you look at the big picture, apart from the fact that market volatility is leveraged, the total cost of investment averages out when you invest via SIP.

SIPs as a concept have traditionally been privy to mutual funds. If you are one of the many investors who has experienced favourable returns thanks to your SIP mode of investment in mutual funds, you have probably wondered if the same fundamentals can be extended to stocks.Do SIPs for stocks exist? Couldn’t you buy a few shares at the same time of day every day for the next few days and get a price that is – on average – a fairly good price? But this takes a lot of conviction and time. Is there an automated facility available, like with mutual funds? Let’s explore.

Table of Contents

What are stock SIPs?

Stock SIPs are sometimes referred to as DIY (Do it yourself) SIP or ESIPs (Equity SIPs). DIY SIPs are more strenuous investing modes, suitable to the investor with a strong will and conviction in their investing methodology and choice of stocks. It entails manual execution of buy orders for the same stock on a fixed date every month or a frequency of your choosing. It is very easy to be held up here by behavioural biases or fear (of the price fluctuation).

In an ESIP, your broker sets up for shares with a certain amount to be purchased at a set time on a set date. The date/frequency might be monthly, fortnightly, weekly, or daily. The quantity of stocks, of course, will vary depending on how many shares you can afford with your fixed sum investment. You can set a maximum buy price to avoid buying when stock prices are overinflated. Here too, the order however is not automatically affected; rather, you only get a notification as a reminder that your SIP in stocks is due.

In both cases, you do have to watch the market to time your exit, or alternatively, you can opt for the systematic withdrawal.

Key features of stock SIPs

The key features of a stock SIP are as follows:

Regular investment

You set up your stock ESIP such that a fixed amount is deducted at fixed intervals – meaning that you will regularly invest a predetermined amount that will help grow your corpus over time.

Fixed investment amount

Typically, you can choose a fixed amount of capital to be invested per month. This feature can benefit you through rupee cost averaging, apart from alleviating the pressure of gaining exposure to stocks in a lump sum.


Direct debit of the predetermined amount

The lineup of transactions at the frequency that you have chosen will be set up at the start of the SIP and the amount is directly debited from your account on the predetermined date once you verify the transaction. Investors may also pause, stop or extend the SIP as desired.

Multiple stocks can be chosen for stock SIPs

This means that if you have Rs. 20,000 to invest every month, you need not choose only one stock for your ESIP. You can choose several stocks and diversify your portfolio. Also, the investor gets to choose a maximum buy price beyond which the buy will be forgone till the investor gets the said buy price. This works like a stop loss and reduces your risk by ensuring that you do not pay too high an entry price.

Benefits of investing in stock SIPs

Rupee cost averaging

You might pay an inflated share price in some instalments, but you could also buy at a discount in other months. Therefore, in the long-term, the price more or less averages out. This is why it is immensely popular amongst most investors as it provides rupee cost averaging.

Ideal for salaried class

If you want to invest in stocks but do not prefer the lump-sum method (to buy a good chunk of shares), SIP stock investment could help you pursue your financial goals.

Good option for people who have no time to watch markets

If you have the time to choose stocks but not the time to plan your entry, then you might just benefit from investing in stock SIPs because the idea of a SIP is to buy equally whether stock prices are up or down, so as to average out prices in the long run.

Factors to consider when investing in stock SIPs

A stock SIP does sound good in theory.However, SIP for stocks could go either way. Here’s why:

Stock prices fluctuate far more dramatically

The price of a mutual fund’s units does fluctuate but it is quite rare for mutual fund unit prices to experience the dramatic volatility that stock prices can often exhibit. Stocks react fast, especially when guided by some news that is followed by a knee-jerk reaction from investors.

Mutual funds mitigate your capital (and risk) across many stocks

When you put your capital in mutual funds, the fund will divide your capital across various stocks so as to keep the overall risk profile of the invested capital as minimal as possible. This means that even if there is a drastic fall in the prices of some stocks, the total hit to the overall capital might be less because other stocks or other securities might benefit at the same time.

Conclusion

Stock SIPs are a simple and effective way of investing in stock markets. It inculcates a disciplined investing style and protects capital from wide volatility. However since the asset is a stock, the risk is high. Through establishing a SIP in a diversified stock portfolio, you may be able to plan stock investments with considerable risk management. Consult your financial advisor before investing in any stock or scheme.

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Manonmayi

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As a Content Writer at Tickertape, my writing style is both engaging and captivating. I take pride in my ability to craft compelling stories and informative content on recent developments in the financial world, which has earned me a dedicated following of readers. Beyond my professional pursuits, I am an avid reader and a true antiquarian, devoting my free time to exploring the world of literature.

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SIP in Stocks: What Is It and How It Is Different From SIP in Mutual Funds (2024)

FAQs

SIP in Stocks: What Is It and How It Is Different From SIP in Mutual Funds? ›

In Stock SIP, individuals invest a fixed amount directly into specific stocks at regular intervals. In contrast, in Mutual Fund SIP, individuals invest in a diversified portfolio of securities managed by professional fund managers, making a significant difference between stock SIP and mutual fund SIP.

What is SIP in stock? ›

Systematic investment plans are a disciplined investment approach that allows individuals to invest a fixed amount at regular intervals in selected investment instruments. SIPs offer benefits such as regular investing, flexibility, potential for rupee cost averaging, and the opportunity to start with small amounts.

Is SIP and Mutual Fund is same or different? ›

Many people get confused between systematic investment plans (SIP) and mutual funds. While Mutual Fund is an investment product, SIP is one of the methods of investing in Mutual Funds. So, when you invest through SIP, you are actually investing in a Mutual Fund.

Which is good SIP or stocks? ›

SIPs are the best way to participate in the markets, while investment in individual stocks is highly risky because of market volatility. Investment via SIPs helps in rupee cost averaging without worrying about market volatility.

Can I invest in stock like SIP? ›

However, investors can also choose to buy a stock of their choice directly instead through an SIP and decide how many shares will be bought every month or a period of their choosing, thus accumulating the stock over time.

Which is better stock SIP or mutual fund SIP? ›

Thus, a mutual fund SIP has a better risk-management ability than a stock SIP because of asset diversification and offers perhaps even cost-efficiency. A major requirement in a stock SIP is that the investor must have the knack to select the right stock, and only then can they expect a profit or better return.

What are the benefits of SIP in shares? ›

The unique feature of SIP is the Rupee Cost Averaging, where you buy more units when the market is low and buy less when the market is high. This is because of the inherent feature of SIP, where at every market correction, you will buy more, reducing your cost of investment and higher gains.

Which SIP gives highest return? ›

Best SIP Plans in India in 2023
Returns
Fund Name3 Years5 Years
Growth Opportunities Plus Fund Bharti AXA22.34%13.11%
Pure Equity Birla Sun Life21.55%13.74%
Virtue II PNB Metlife23.59%15.64%
7 more rows

Can I withdraw SIP anytime? ›

Yes, you can withdraw money from your SIP anytime. However, there are a few exceptions. For instance, ELSS has a lock-in period of three years, while a children's savings fund exhibits a lock-in period of 5 years.

What is SIP and how it works? ›

SIP is a method of investing a fixed amount, regularly – monthly or quarterly in a mutual fund scheme chosen by you. An investor can invest a pre-determined fixed amount in a chosen scheme every month or quarter. In this article we will discuss the different aspects of SIP investments.

How much SIP is good? ›

A general rule of thumb is to invest 10-15% of your monthly income in SIP.

What is SIP vs lump sum in stocks? ›

Thus, the major difference between lump sum and SIP is rupee cost averaging. One time investment fluctuates as per the market movements. On the other hand, SIP investment averages the cost of the units over time. Thus, one can choose SIP or lump sum for investment in mutual funds based on their investment objectives.

How to invest in SIP in USA? ›

So, let us look at the steps that describe the procedure of starting a SIP.
  1. Determine Your Objectives. ...
  2. Determining Tenure of Investment. ...
  3. Being KYC Compliant. ...
  4. Determine the Best Scheme You Are Planning to Invest. ...
  5. Decide Investment Amount & Date. ...
  6. Monitor and Rebalance Your Investments.
Aug 13, 2023

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