Direct investment: SIP vs ESIP
Recently, the market has been volatile, making the investors highly impatient. During these unpredictable conditions of the market, the systematic investment plan (SIP) method of investing in mutual funds is highly recommended. Similarly, equity SIP (ESIP) is a way of making small investments in stocks periodically and thereby taking advantage of the fluctuating stock prices. Therefore, the ESIP mode of investment can be useful for direct equity investors. This mode can help abstain from timing the market, invest with a systematic approach, and stay in a safe position during unpredictable times.
Risk is directly proportional to returns in the financial market. Thus, the higher the risk, the higher will be the returns. Mostly, online platforms for trading provide SIP benefits in direct equities. The online platforms permit investors to make a decision for either the amount required to be invested or the number of shares to be bought at pre-decided intervals for a fixed tenure. ESIP is a boon for those who are not connected to the market on a daily basis. It allows people involved in finance to invest in stocks with a systematic approach and renders help in networking their investments over a time period. Further, one can create a flexible corpus with small finances.
ESIP has its set of limitations, but if we utilize it reasonably, we can use this mode of investment as a substitute for our existing investments. We must ensure to set expectations while we start the venture and keep a check on the performance of stock at regular intervals. Equity SIP is a good option for the investors because when the prices are low, the investors can get more stocks when compared to the stocks when prices are high. Therefore, it can build an enormous corpus when the market is in a profit, thereby assisting the investor to reach his/her financial goals faster.
However, it is essential to narrow down and make an informed decision while picking stocks for direct ESIP. The mutual fund SIP allows automatic diversification, but Equity SIP does not. Investors need to select organizations that are providing strong growth in earnings, proper governance, and ratios of high return. Therefore it is recommended to have a thorough knowledge before choosing a stock to invest.