Systematic Investment Plan in Equities - EQUITY SIP

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Equity SIP

Equity Systematic Investment Plan or Equity SIP is truly a god sent for retail investors in the stock market. I’m sure majority of you know what is a SIP or how a SIP works. But most of you must have only heard about SIPs in mutual funds. But did you know that you can even start a SIP in stocks? This is known as Equity SIP.

Yes, with Equity SIP you get to leverage the benefits of SIP like rupee-cost-averaging and power of compounding in stocks as well. What is Equity SIP? Apart from being a god sent, Equity SIP is solving the biggest investment problem faced by retail investors – When is the best time to invest in the stock market?

Retail investors have always struggled with timing their entry in the market. Most of the time they end up investing near market highs and sell near market lows. Equity SIP is the perfect solution to this problem.

What is Equity SIP?

Equity SIP is simply buying shares of a company at regular intervals. Once you buy these shares, you become a part owner of that company. This means you get to enjoy the company’s profits, dividends and participate in its future growth.

Both Equity SIP and Mutual Fund SIP invest a fixed sum of money at regular intervals in selected stocks and funds. But Equity SIP and mutual fund SIP are not the same. Let us look at the difference between Equity SIP and mutual fund SIP.

Equity SIP Vs Mutual Fund SIP

  • In mutual fund SIP, you are investing in a fund which will then invest in a group of stocks. Whereas in Equity SIP you are directly investing in common stocks of a company.
  • Mutual funds are managed by expert fund managers. But in the case of Equity SIP, you have to select your own stocks after conducting adequate research. Wondering how to identify stocks for Equity SIP? Check out this interesting video now.
  • When you start a mutual fund SIP, you can start with even Rs 100. This is because you can own partial units of a mutual fund scheme. But you cannot buy partial shares. Hence, the concept of minimum SIP amount is not applicable in Equity SIP. For example, the share price of MRF Ltd on 21st November 2021 is Rs 77,730. So, you cannot start a SIP of Rs 100 in MRF. Your minimum SIP amount in Equity SIP varies as per current market price of the stock.

Watch this video to learn everything about Equity SIP

What are the Types of Equity SIP?

Equity SIPs can be of two types:

  • Amount-Based Equity SIP is when the investor decides a fixed amount to be invested every month, quarter or year in the particular stock for a specific time period.
  • Quantity-Based Equity SIP involves the investor deciding a fixed quantity of shares to be purchased every month, quarter or year of a particular stock for a specific time period.

What are the Benefits of Equity SIP?

Benefits of equity SIP
  • Small Steps - Big Gains: Equity SIP gives you the freedom to invest in a particular stock at regular intervals without the need for a huge investible surplus. For example: suppose you want to buy 100 shares of Infosys Ltd. The market price of the stock on 21st November 2021 is Rs 1,765. To buy 100 shares, you will have to pay Rs 1,76,500 upfront. But not every retail investor has such high investible corpus. The solution is Equity SIP. With amount-based Equity SIP, you can simply start a monthly SIP of Rs 1,765. Or else using a quantity-based Equity SIP, you can register to buy a fixed quantity of Infosys shares like 10, 20 etc. every month.
  • Rupee-Cost-Averaging Tool: Rupee-Cost Averaging is a strategy that reduces the impact of volatility by spreading out your purchases. This ensures that you are not buying shares at a high price. Rupee-cost averaging is buying at regular intervals and in roughly equal amounts to average-out the cost price. Let us take the same example of Infosys shares. Both Mr Ram and Mr Shyam want to buy shares of Infosys Ltd worth Rs 1 Lakh each.
  • Mr Ram decides to buy all the shares at one go on 19th October 2021. He received 55 shares at a current market price of Rs 1,822.
  • Mr Shyam was smarter and decided to do an Equity SIP over a one-month period as follows –
Date of Purchase Current Market Price SIP Amount Units Acquired
01-10-21 Rs. 1,665 Rs. 25,000 15.01
11-10-21 Rs. 1,691 Rs. 25,000 14.78
20-10-21 Rs.1,802 Rs. 25,000 13.87
29-10-21 Rs.1,668 Rs. 25,000 14.99
Total Units Acquired 58.66
Total Average Cost of Purchase Rs. 1,705

Let us compare both the portfolios on 18th November 2021.

Particulars Ram Shyam
Total Units 55 59
Average Purchase Price Rs. 1,822 Rs. 1,705
Total Purchase Price Rs. 1,00,210 Rs. 1,00,015
Current Market Price (18th November 2021) Rs. 1,779 Rs. 1,779
Total Current Market Price Rs. 97,867 Rs. 1,04,380
Gains Rs. -2,343 Rs. 4,364

Due to rupee-cost-averaging, Shyam accumulated more units (59 shares) than Ram (55 shares). Also, with lower average purchase price, Shyam was able to make a notional profit of Rs 4,364 while Ram made a notional loss of Rs 2,343. Hence, rupee-cost averaging is one of the biggest benefits of Equity SIP.

Cost averaging technique is especially useful if a company misses quarterly estimates and the stock goes down. If the entire market nosedives giving negative returns and pushes the stock prices down with it, the investor can look to add more quantity of the same stock at deep discounts and lower its weighted average cost of investment. But this is provided the business model of a particular investment is fundamentally viable and feasible

  • Power of Compounding: As Warren Buffett has aptly remarked, ‘My wealth has come from a combination of living in America, some lucky genes and Compound Interest. Compound Interest is when you earn interest on your interest. Experience the Power of Compounding using our SIP calculator. Bottom of Form

Let us see how power of compounding works in the case of Equity SIP.

Suppose you started a SIP of Rs 500 in Asian Paints in January 1995. You increased your SIP amount by 10% on an annual basis. The value of your portfolio on 31st October 2021 would be a whopping Rs 2.63 crores.

Starting SIP Yearly increase
in investment amount
Total Shares bought Amount Invested CMP Wealth created IRR
Rs.500 10% 8,498 Rs 7,11,315 Rs 3,100 Rs 2,63,44,650 27.70%
Equity SIP graph

You started your Equity SIP with just Rs 500 per month. Over the next 26 years, your total investment amount was Rs 7.11 Lakhs. The value of your investment after 26 years is a whopping Rs 2.63 crores. This is a gain of 28%! This is possible only through the power of compounding.

  • Disciplined approach: Equity SIP is a simple and disciplined approach towards investment. SIPs are generally linked to an auto-debit mandate i.e at a specified date, your chosen amount is automatically debited from your bank & invested in equities. So, equity SIP eliminates any delays caused by manual investing.
  • Flexible approach: In Equity SIP, investors can decide the amount or the quantity of investment as well as the gap between two intervals. However, regular SIP investments have higher chances of success in the long term.

There is no doubt that Equity SIP is the best way to invest in stocks. But there are some parameters that you must consider when you are selecting stocks for Equity SIP.

Parameters to Consider While Selecting Stocks for Equity SIP

1. Start Equity SIP in only those stocks and sectors that you fully understand. Focus only on companies that are in your circle of competence. Watch this video to identify companies in your circle of competence. For example: If you are working in a bank, you will have in-depth knowledge of the banking sector. You will know the ideal Non performing asset (NPA) levels, banking processes etc. So, consider doing an Equity SIP in stocks and sectors that you understand.

2. Always keep an eye out for products and services that are slowly growing in popularity around you. Reviews from relatives or colleagues can often help you avoid bad companies. For example, if a friend of yours is complaining about the falling quality of a makeup brand, then that can be a potential red flag for you.

3. Don’t keep a short-term view when investing for the long-term. Equity SIP will help you create wealth only when you are invested for the long-term.

Watch this video and learn how to pick stocks for Long-term Equity SIP

Who Should Invest in Equity SIP?

  • A long-term investor, who knows wealth can only be created by staying invested in quality stocks for a long period.
  • A student, who wants to make an investment for the first time.
  • A salaried professional, who started working a few months or years back and has saved up some money to invest in a good and safe asset class.
  • A seasoned investor, who has created some wealth in equity markets and understands the nitty-gritties of the stock market.
  • A senior management professional, who does not have the time to track markets but wants to create wealth in the stock market.
  • So basically, Equity SIP is for anyone and everyone who are interested in long term investments.

Why StockBasket SIP is the Best Equity SIP in India?

While Equity SIPs generate higher returns, it does come with high risk. Hence, it is very important to make an informed decision when selecting a stock for the equity SIP. The best way to do an equity SIP is via StockBasket - India’s first long-term buy and hold investment platform.

  • Expert selected stocks: Every stock basket contains well-researched stocks. These stocks are shortlisted by experts using StockBasket's proprietary AI and machine learning technology.
  • Continuous monitoring: Expert research analysts monitor all stocks regularly. This is done on both individual and overall portfolio level. Necessary changes are made as and when required.
  • Dividends: Dividends paid by companies is directly transferred in the investors account.
  • Low-cost model: StockBasket follows a flat fee structure. It means that the fees charged per basket does not change with the value of the basket. The average cost of holding a basket comes to about 1.5% p.a., which is 1% less than many regular equity mutual fund schemes. With time, the value of your investment goes up, thus the fees charged goes down in percentage terms.
  • Control: Investors have sole control over their portfolio unlike a PMS or mutual fund scheme.
  • Avoiding Over-diversification: Mutual fund schemes own stocks ranging anywhere from 25 to over a 100. This leads to over-diversification. It could also hamstring investors from earning higher returns.
  • Long term approach: StockBasket works on a 'buy and forget' philosophy. StockBasket’s stocks pass the '5-year Bond test'. This test is such that even if the markets shut down for 5 years from tomorrow, meaning you will not be able to sell or make changes to your portfolios, you can still sleep peacefully. This test helps us to shortlist stocks that would survive as well grow with great amounts of certainty.
  • 5-year fee refund guarantee: This is StockBasket’s most unique and powerful feature. When an investor invests via StockBasket, they are in essence subscribing to Samco’s research. It is based on the principle of - "We Don't Make Money, if you Don’t". It means that if you lose money in a particular basket even after holding it for a period of 5 years, then the subscription fee collected over 5 years will be refunded to you.
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When is the right time to start an Equity SIP?

As a popular Chinese proverb goes, 'The best time to plant a tree was 20 years ago. The second-best time is now'.

Similarly, there is no 'correct' time to start an equity SIP. The best time to start an equity SIP is 'NOW'. One of the most important benefits of equity SIP is that investors no longer have to time the stock market. They can continue investing through market ups and downs.

But before you start investing in Equity SIP, take a moment to appreciate StockBasket’s stellar returns.

Sr No. Basket Name 5 years Return (%)
1 Health and Wellness 48.6
2 International Education Basket 35.41
3 Domestic Education Basket 34.54
4 Digital India 33.62
5 4X Target in 10 Years - Lite 28.36
6 5 Year - High Risk - Regular 28.35
7 4X Target in 10 Years 26.28
8 Bet on India's Millennials 25.13
9 Retire in 2040 - Regular 24.7
10 Largest Irreplaceable Networks 24.24
11 Home and Home Decor 22.89
12 Capital Efficient Cos - Lite 22.63
13 Market Leaders India 22.52
14 5 Year - High Risk - Lite 22.39
15 Value Buy 2020 Basket 21.98
16 Leaders of Tomorrow 21.83
17 Top MNCs India - Lite 21.5
18 Capital Efficient Cos 21.35
19 5 Year - Low Risk - Regular 21.34
20 TOP MNCs India - Regular 21.17
21 Dividend Champions 21.14
22 Retire in 2040 - Lite 20.8
23 India's Wealth Compounders 19.92
24 India's Biggest Brands 15.5
25 5 Year - Low Risk - Lite 15.07
26 Beginners Basket - Lite 12.72
27 International Vacation Basket 10.82
28 Urbanisation of Rural India 9.84

*Returns calculated as on 29th Jan 2021 (Note: Returns calculated before 30th Sep 2019 are backtested results)

As we saw earlier, even with a monthly Equity SIP of just Rs 500, Shyam was able to create a corpus of Rs 2.48 crores in Asian Paints. Here are how other seemingly small Equity SIPs have created humongous wealth –

Stock Starting SIP Yearly Increase Total Investment CMP 31st October 2021 Total Wealth IRR
Hindustan Unilever Ltd. Rs 500 10% Rs 7,23,554 Rs 2,393 Rs 49,99,290 16.90%
Hero Moto Corp Rs 500 10% Rs 6,94,854 Rs 2,657 Rs 59,14,705 18.08%
Asian Paints Rs 500 10% Rs 7,11,315 Rs 3,100 Rs 2,63,44,650 27.70%
Pidilite Industries Rs 500 10% Rs 7,18,455 Rs 2,313 Rs 4,05,99,930 30.30%

*Data as on 31st October 2021.

So, if you too want to create humongous wealth with the power of compounding via Equity SIP, then Stock SIP is your ultimate weapon. Create a FREE Samco Demat account and get FREE access to StockBasket – India’s best long-term investment and research platform.

Summary

We at StockBasket believe that Stock Selection is tricky with less than 20% chance of success. Hence, it is very necessary to select the right stocks with high quality research and data analysis. Retail investors, more often than not, fail to do the required research and therefore, end up buying an underperformer. Click here to explore baskets based on the goals of the investors, time frame, investment amount and other factors to ascertain the correct basket of stocks. A regular SIP into these baskets will help investors meet their primary, secondary as well as aspirational goals on time.



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