While some people are used to the concept of systematic investment plan (SIP) in equity mutual funds, many people are not aware SIP in direct equity. This is a process of systematically building an equity portfolio of fundamentally strong companies by investing in a specific amount on a regular basis.
Many brokerages offer such facility to their clients. It's a great way of accumulating blue chips, especially those stocks whose prices are high and it's often unaffordable for an average investor.
An equity SIP can me amount based or quantity based. The first one requires investing a fixed amount at regular intervals to be invested in selected stocks at pre-defined frequency, while in the second process the investor buys a specific number of shares of a particular company at specific interval irrespective of whatever be the price. In either case, the amount to be invested on a regular basis or the number of shares to be bought at a regular frequency will be decided by the investor himself.
The very concept of SIP is about adhering to a simple and disciplined approach towards investment. It allows you to invest small sums of money regularly to accumulate wealth, plus it offers enough flexibility in terms of the amount invested or the quantity of shares bought at a pre-defined frequency. Even the interval of investment can be flexible, such as daily, weekly, fortnightly or monthly. It leads to averaging of costs of the security leading to better return on investment in the final count.
In terms of other benefits, with the help of an SIP one can start equity investment with very small amount of money. It doesn't give you much headache in terms of timing the market or looking at day-to-day market movement.
But remember, an SIP is not a product or a fund; it is just an investment process. So, one needs to be careful while choosing a security to invest in through the SIP route. Instead of basing investment decisions on expectations of how the market will behave, SIPs facilitate a disciplined participation in the market through ups and downs.
And one can safely align one's long-term goals with an SIP. It reduces the risk to a great extent by leveling our the troughs and crests of the market and thus averaging out the cost of the security. Last, but not the least, it can help inculcate a disciplined approach towards investment.