What is an SIP in stocks, and does it have advantages over SIP in funds?

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What is an SIP in stocks, and does it have advantages over SIP in funds?

October 06, 2021
What is an SIP in stocks, and does it have advantages over SIP in funds?

If you are an investor, you are certainly aware of investing in mutual funds through a systematic investment plan or SIP. But did you know there is an SIP for stocks as well? A Systematic Investment Plan is commonly understood to be a convenient method of investing in mutual funds, wherein an investor can choose and invest a fixed amount at fixed intervals in a mutual fund scheme of their choice. Interestingly, not many know this, but you can also invest in stocks through a systematic investment plan. How? Let’s dig in!

What is SIP in stocks?

The idea or principle behind SIP in stocks is the same as the systematic investment plan in a mutual fund. So a stock SIP is simply a systematic method of investing a fixed amount in stocks at fixed intervals. The only difference is that you invest in shares instead of buying units in mutual fund schemes.

While investing in Stock SIPs, investors can either mention a fixed amount or a fixed number of shares for which the shares are to be purchased periodically. For example, an investor can buy 10 shares of a particular company per month or select a certain amount, such as INR 500 per month, to buy the shares of a specific company. The pre-defined intervals available with most brokers are weekly, fortnightly, monthly and so on.

Moreover, you can either choose a single stock or create a basket of stocks while investing in stocks through SIP. While both approaches are available to investors, many brokerages also allow you to invest in a fixed set of equities. The minimum investment per instalment amount remains as low as INR 100 or INR 500, depending on the brokerage.

Does Stock SIP have advantages over SIP in funds?

Like most of the questions in the world of investments, this one, too, does not have a straightforward answer. Whether one type of investment is better than another or not depends a lot on the investor. Investments must always be based on the investor’s profile, risk appetite, and financial goals. But here are a few points that might help you in coming up with a decision:

  • SIP in stocks is riskier than SIP in a mutual fund. While experienced experts manage your investments in mutual funds, you will have to pick the best stocks and decide when to enter and exit yourself in case of SIP in stocks. As an investor, you must be sophisticated enough to understand when to exit a stock and book profits or avoid losses. So, if you can analyse company reports and comprehend business trends, stock SIP might be for you.
  • When you invest in Mutual Funds through SIP, sale and purchase transactions done by the fund manager in the portfolio are not liable to tax. Tax implication occurs only when you sell the investment. On the contrary, every transaction done by you in a stock SIP will have a tax implication.
  • Mutual fund investment is more convenient as it requires no active involvement of the investor. As long as the instalments keep going on time, your money is adequately utilised by fund managers. On the other hand, you must give ample time and be actively involved in a stock SIP to make the best of your money invested.
  • Many investors use stock SIP not as an alternative to mutual funds but as an excellent supplement to the mutual fund portfolio. There can be instances when your mutual fund scheme may not be investing in one of the favourable stocks, which might be a valuable buy. Stock SIP can be a great tool to access these stocks and build a diverse portfolio in such a scenario.

As always, the conclusion is to choose an investment option depending on your investment horizon, financial goals and risk profile. For example, suppose you are a seasoned investor in equity with a high risk tolerance. In that case, SIP can be a helpful method of automating your investments and take advantage of Rupee Cost Averaging. But you may consider investing in mutual funds through SIP if you are looking for a low-risk method of long-term wealth creation.

Best of luck!


Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Please refer the Risk Disclosure Document issued by SEBI and go through the Rights and Obligations and Do’s and Dont’s issued by Stock Exchanges and Depositories before trading on the Stock Exchanges. Brokerage will not exceed the Exchange prescribed limit.

R. Kalyanaraman
by R. Kalyanaraman

Chief Executive Officer

I am a sales guy at heart with utmost willingness to listen to people – customers, employees, competitors et al. Nothing gets me a bigger adrenaline rush than an interesting conversation with my customer!