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Benchmarks touch record highs, should you adopt Systematic Equity Plan to invest in stocks?

SEP strategy saves investors from a lot of adversities like market volatility, event-based volatility and broad-based corrections, to an extent.

July 30, 2018 / 07:46 AM IST

At present, the benchmark indices (Sensex and Nifty) are at their peak because of a handful of stocks such as TCSHDFC BankKotak Mahindra BankReliance IndustriesBajaj Finance, etc. Investors are concerned if it is a good time to invest lump sum amount in equities given the high valuations, current economic scenario and upcoming Lok Sabha elections in 2019.

Financial experts are recommending that investors out in money directly in equity markets with systematic equity plan (SEP), which is similar to mutual fund SIP. Jimeet Modi, CEO and Founder at Samco Securities & StockNote said, “An SEP strategy would work if an investor has conviction that the stock is of great quality as the SEP doesn’t see if the market is over or under-valued and averages out the costs eventually.”

In Systematic Equity Plan (SEP), an investor prefers investing directly into the market a fixed amount, or quantity of specific stocks, that are identified for long-term investment. For instance, if an investor, say Sameer, can buy Tata Steel 20 shares every month on 15th of the month and instruct his/her broker to continue investment for next 3 years through SEP.

Anugrah Shrivastava, Co-founder, smallcase Technologies said: “This period of regular investments could be monthly, quarterly or even yearly, depending on the investor’s preferences and goals. The amount of investment made in every SEP installment could differ a little bit, depending upon the movements in the price of the stocks.”

Mustafa Nadeem, CEO, Epic Research said: “SEP strategy saves investors from a lot of adversities like market volatility, event-based volatility and broad-based corrections, to an extent.”


Several brokers are now offering this strategy to invest in stocks. Investors need to select SEP activation option specifying time interval while opening a trading account.

Why SEP works in current market?

Tejas Khoday, CEO and Co-Founder, FYERS (Free Investment Zone) said: “Considering that midcaps, smallcaps, and certain sectors have been decimated in 2018, it is a good place to start investing in direct equities through SEPs.”

As an investment strategy, SEP makes sense when there are uncertainties and fear in the market and there's scope of a bargain.

In what kind of stocks should you apply SEP?

Khoday explained, “It makes sense in stocks which are consolidating in a healthy correction or were stuck in a trading range. This can be a good time to accumulate shares with SEP.”

A good example is Reliance Industries. It was stuck in a price range of Rs 870 to Rs 1,000 per share for eight months. Now, it’s trading around Rs 1,115 and several investors earned by accumulating with SEP strategy. It's not easy to perfectly time such stocks and hence, SEP becomes a weapon of choice.

How to build a portfolio using an SEP?

Shrivastava explained: “The first step in starting an SEP would be to identify the right stocks to invest in. An investor should carry out adequate research before choosing stocks to invest in. An investor shouldn’t rely on tips while selecting stocks.” If the investor doesn’t have the time, knowledge or expertise to build a portfolio of stocks, then he can choose a portfolio designed by team of analysts with a broker.

Before investing in direct stocks through SEP, remember that one has to have thorough understanding of business of company whose stock one is choosing.

Pritam Deuskar, Fund Manager, Bonanza Portfolio said: “You should be able to read company’s balance sheet, cash flows, ratios, fundamentals, micro and macros of the economy and have clear view about company.”

Deepak Jasani, Head - retail research, HDFC securities added, “While building a portfolio for investing through SEP, investors should prefer concentrated positions (in say 3-5 stocks) rather than investing in a basket of 25-40 stocks (like in a focused mutual fund equity scheme).”

Build a diversified portfolio and timely review is must

Nadeem said, “While investing in direct stocks through SEP, identify momentum or sectors that are going to be future leaders and identify the stocks that have solid fundamentals to drive the growth in those sectors. Well-diversified portfolio will add a lot of value creation hence, it should not be stock or sector-centric.”

Jasani cautioned, “Investors need to review the financials of companies in which they start an SEP and continue to devote as much time as necessary for study. It’s important to have regular review so that investors can change the composition of stocks in portfolio (or exit particular stocks) when required.”

Who should adapt SEP strategy to invest in stocks?

Investors who are undisciplined should invest through SEP as it is very systematic and the amount is fixed in advance. Modi suggested, “Investors who are risk-averse and afraid to invest due to market volatility can use this strategy as the costs get eventually average out if invested for a long period of time when the entire cycle of the stock is complete.”


Deuskar said, “As the amount invested is the same at all intervals (rounded to nearest share value amount), you get more stocks when the prices are low and less stocks when the prices are high. This way the pricing of the stocks get averaged.”

One can build a portfolio of substantial number of shares of good stocks over a period of time.

“An SEP allows the investor to hold the stocks in his demat account, which gives him the benefit of additional dividend income,” Shrivastava said.


“SEP strategy is not useful in stocks which are already very bullish because investors will be paying a higher price each time to buy the same stock,” Khoday said.

At several instances, investor himself chooses the stock to invest through SEP strategy. Modi warned, “This strategy can turn out to be a faulty investment for such investors if adequate research is not carried out before investing.”

Hiral Thanawala
first published: Jul 30, 2018 07:28 am
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