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The stock SIPs lure of Zerodha, ICICI Direct and HDFC Securities: Should retail investors take the bait?

For do-it-yourself investors, the stock SIP facility can be a boon, if they know how to make the right choices

October 29, 2021 / 10:15 AM IST

Monthly systematic investment plans (SIP) in mutual funds have recently crossed the Rs 10,000 crore mark. Many investors also use the SIP route to buy stocks.

Brokerages such as ICICI Direct, HDFC Securities, IIFL and Zerodha offer equity SIPs. The market rally over the past 18 months has brought renewed interest among investors.

“Over the last couple of years, we have seen investor awareness on regular investing increase with a long term view on stocks,” says Suvajit Ray, Head-Product and distribution, IIFL Securities. Ray adds that brokerages have used the lockdown imposed due to COVID-19 pandemic last year to connect with existing as well as many new customers and brought them to the equity markets. Many, he says, have invested through equity SIPs.

IIFL Securities has seen a four-fold increase in enrolments in equity SIP over last one year. HDFC Securities, one of the large retail brokerages, also had a similar experience. The number of investors opting for stock SIPs rose by approximately 35 percent per annum over the last two years on a sizeable base. Amounts triggered or invested per month have risen faster, at 75 percent per annum over the same period.

What does all this mean for investors?


How does stock SIP work?

Like a mutual fund SIP, you should choose the frequency of your investment – daily, weekly or monthly. Specify the number of shares you want to buy or the amount of money you intend to invest and the number of instalments. Your broker will do the rest of the work. For example, on the 10th of each month, you may want to buy 10 shares each of ICICI Bank and HDFC Bank. You can do so by signing up for a stock SIP.

Brokerages also send out text messages or emails a day before the due date to inform you that a buy order is due the next day. You can fund your broking account accordingly.

What can you buy?

Some brokerages do not allow trading of penny or illiquid stocks using the stock SIP facility. Brokerages also offer a basket of stocks, for investors looking to accumulate shares of firms over the long term.

“Our stock SIP portfolios primarily include good-quality large-cap and midcap stocks that can be held for the long term,” says Ray. We monitor these portfolios and also notify our clients for rebalancing the portfolios as well as exits wherever applicable, he adds.

What are the costs?

Brokerages do not charge additional costs for the stock ideas they give or the stock SIP facility they offer. But when you buy stocks, you must pay the brokerage and the statutory charges applicable.

Buy and forget strategy won’t work

For do-it-yourself investors, the stock SIP facility can be a boon, if they know how to make the right choices. “Stock SIP is a great way to accumulate stocks that you have been shortlisted after sufficient due diligence, considering your risk profile and where you think wealth can be built over time,” says Deepak Jasani, Head of Retail Research, HDFC Securities.

This strategy allows you to benefit out of averaging in a concentrated portfolio of stocks and building wealth over time, without paying any management fees or expenses, he adds.

In a stock SIP, it is assumed that you are looking to accumulate stocks and will hold them for a long period of time. If you buy cyclical or smallcap stocks, which may go out of market favour at times, you may have to wait for longer to make gains in your portfolio.

“Avoid companies with high debt or those in cyclical or capital-intensive businesses. Instead, build a stock portfolio of around 10 to 15 quality stocks with a 10-year timeframe,” says Vinayak Savanur, Founder and CIO at Sukhanidhi Investment Advisors. Even if the markets turn volatile, you can continue accumulating quality stocks, he adds.

You need to have an understanding of businesses or should have access to advice. You cannot buy and forget the stocks. “Review the stocks that you are buying via SIPs. It is essential to check whether the thesis based on which you invested in them is still intact,” says Jasani.

But not all experts are fans of stock SIPs. Anup Bhaiya, Managing Director, Money Honey Financial Services says, “When you buy individual stocks, you have to get the entry and exit right. If you fail on either side, you have to settle for mediocre returns. In a mutual fund, the scheme manager does that for you and hence SIP works better in an equity fund.”

Go for stock SIP if you have access to the right advice or you can manage your entry into and exits from the stocks. Stock SIP does bring in an element of discipline while investing, but it is no assurance for succeeding.

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Nikhil Walavalkar
first published: Oct 29, 2021 10:15 am
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