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Invest in equity markets, systematically

Invest in equity markets, systematically
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First Published: Sun, Aug 21 2011. 07 59 PM IST

Shyamal Banerjee/Mint
Shyamal Banerjee/Mint
Updated: Sun, Aug 21 2011. 07 59 PM IST
The Bombay Stock Exchange’s benchmark index, the Sensex, closed at 18,314.33 on 1 August, went down to 16,857.91 on 9 August, recovered to 17,130.51 on 10 August and closed at 16,141.67, a 15-month low, on 19 August. The markets have been volatile for some time now.
And if you are one who is confident of investing in equities yourself and do not want to take the mutual fund route, and are looking for some gains in this market, we can predict your anxieties. Should I invest now or wait for the market to go further down, what if the markets have already bottomed out and recover after this point, are only some of the queries you may have. Since it is impossible to time the market, there is no straight answer to any of these queries. So what should be your strategy in volatile markets? One way is to invest in tranches so that your money gets averaged out over the troughs and crests of market movement.
Shyamal Banerjee/Mint
Just like in MFs, you now have the option of having a systematic investment plan (SIP) in stocks directly, too. It gives you the flexibility of investing slowly but steadily in the stocks of your choice.
Though the inherent risk of investing in equities remain, you can tide over volatility through this approach. “There was always the facility of creating an SIP in MFs, however it was not there for equities. It is a method to build a portfolio consisting of fundamentally strong stocks over a period of time,” says Renjith R.G., head (sales), Geojit BNP Paribas Financial Services Ltd.
How to open a stock SIP?
All you need is a trading account with the brokerage offering this service. You also need a demat account, which could be with any other brokerage house as ell. There is no extra paperwork for the SIP facility, but you need to apply for it either online or through a physical application form.
The brokerages that offer the facility as of now include Geojit BNP Paribas Financial Services Ltd, Reliance Securities Ltd, HDFC Securities Ltd, Kotak Securities Ltd and ICICI Securities Ltd.
Brokerage fee: Charges depend on the brokerage house and is the same as is applicable on normal stock trading. But remember that you pay a brokerage fee every time you buy or sell. Also, some brokerage houses charge a one-time fee while opening an SIP, while others offer them free of cost.
How much can you invest?
You can specify the exact amount you want to invest at regular intervals, subject to a minimum limit, which varies from broker to broker. Alternatively, you can buy a certain number of stocks on the specified dates. The stocks can be from one company or from multiple companies; you can also choose the model portfolio consisting of stocks of several companies offered by most brokers.
The minimum amount for some brokerages is as low as a single unit of a particular stock. “The control is in the hands of the customer. They can decide whatever amount they want to buy,” says Srikant Khopkar, head (investment products), HDFC Securities.
Some brokerages also offer you the option to fix an upper cap for investment. Now, say you can’t afford to invest above Rs 10,000 every month. However, the combined value of the stocks chosen by you exceeds this amount. In this case, the brokerage will buy stocks worth Rs 10,000 only. The number of stocks will be in the ratio fixed by you and any balance amount will remain in your trading account.
When can you invest?
You can create an investing cycle according to your convenience. You can invest once a month or at the gap of two or three months. The dates you choose every month are known as trigger dates.
“On the online platform, one can set 10 days, 15 days or a month as the period. On every designated date, the desirable amount will be invested in the stocks chosen by the consumer,” says Renjith.
However, in some brokerages, the trigger dates are defined. For instance, HDFC Securities’ trigger dates are fixed on the 1st, 7th and 15th day of every month. If the markets are closed on that day, the transaction is carried out on the next business day.
“If a customer wants to do SIP multiple times a month on various dates, they need to start that many SIPs,” says Khopkar.
Does it work?
This strategy helps those who are averse to making huge investments at a go or do not have the wherewithal to do so. The strategy also helps price averaging when the markets are falling. “It is a low-risk product for customers. People who have been avoiding markets due to volatility can take this route,” says Vikrant Gugnani, executive director, Reliance Securities.
Some of the blue chip stocks at times are so high priced that an average retail investor cannot buy in bulk. However, through this strategy, one can accumulate these stocks.
“It is a disciplined way of investing. Many customers do want to invest surplus money in the market but it happens for a few months and the discipline fades. Through this systematic way, one can build a robust portfolio over a period of time,” says Khopkar.
The flexibility that the scheme offers also favours customers. Say, the valuation of a particular stock gets stretched. You can immediately stop your SIP in that particular stock and opt for another. “A customer can change the combination any time they want,” says Renjith.
Some brokerages also offer the flexibility to pause an SIP if the customer is under financial constraints or thinks the markets are too high and resume the same later.
Unlike in MFs, where you have no say over the stocks that the fund manager buys, here you can choose your own basket of stocks and build a customized portfolio. But this works only for those who understand businesses and markets well enough to take a call on their own. “In the long term, customers are bound to gain even if the markets have run up shortly. That is the basic premise. Rather than putting huge chunks, which is risky, by accumulating small quantities, the long-term average will be positive,” says Khopkar.
You can look at this product even as a goal planning tool. “Little by little, you can accumulate a particular stock which you think will be ideal for your retirement saving,” says Gugnani.
Mint Money take
Before opting for this product, make sure you have the knowledge to invest in equities.
The product works well for those who want to invest regularly for a long period of time, but do not get the time to do so every month. It also works for those who do not have a lump sum and can only invest systematically.
Tip: Make sure you have enough money in your trading account before the day of execution of the trade.
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First Published: Sun, Aug 21 2011. 07 59 PM IST
More Topics: Sensex | BSE | Equity | MFs | Geojit BNP Paribas |