What Is Equity SIP And How To Set Up An ESIP To Start Investing?
A systematic Investment Plan (SIP) is a popular method of investing in mutual funds at regular intervals. Similarly, an investor can purchase or invest in shares periodically using a facility known as equity SIP (ESIP), which is offered by the brokers. By opting for this investment route, individuals can purchase stocks and exchange-traded funds at specific intervals.
This article is a beginner’s guide to ESIP, its types and how to start investing in ESIP. Keep reading to get all the details!
What Is Equity SIP?
An Equity SIP allows investors to buy shares of their choice at regular intervals (quarterly, weekly or monthly) over a long investment horizon. It facilitates building a portfolio with small investments.
How does ESIP Work?
Most financial institutions offer equity SIP facilities where investors can place ‘buy’ orders for pre-specified quantities of shares. Investors can use ESIPs to get scrips of their choice at regular intervals over a selected time period.
An equity SIP or ESIP is a flexible investment plan where an investor opts for a specific type of SIP. A fixed amount is debited from the investor’s account and invested into the specific shares. It helps in avoiding the risk of buying shares at a higher price. ESIPs are ideal for long-term investors, and one can choose the shares based on the fundamentals of the company.
Types of ESIP
If you want to invest via this plan, you can choose between quantity-based SIP and amount-based SIP.
1. Quantity-based SIP
It is a plan in which an investor buys a fixed number of shares for a particular time frame.
2. Amount-based SIP
It is where an individual invests a fixed amount in a specific share for a particular time. An investor can measure it by dividing the SIP sum by the market price of each share.
Features of Equity SIP
Here are some characteristics of equity SIP:
- Follows the rupee cost averaging concept
- Enables investment in small amounts at fixed intervals
- Flexibility with respect to quantity, time period and amount
Benefits of Equity SIP
Take a look at the advantages of ESIP:
1. Reduces volatility risks
This plan mitigates risk owing to the rupee cost averaging concept. This approach makes you purchase more share units at a lower price and lesser units at a high price. It helps an investor to overcome market volatility.
2. Disciplined approach
Systematic investment plans are regular investments scheduled on a fixed day at regular intervals. The amounts are automatically withdrawn from your savings account periodically. This enables investors to save systematically as well.
3. Favourable returns
An individual can freely choose the investment sum and the time gap between two investments. With the regular sums being invested, the chances of earning higher returns increase in the long run.
4. Power of compounding
It reinvests an individual’s gross investment and boosts savings. Individuals might want to stay invested for as long as possible to benefit from the power of compounding.
Also Read: What Are Focussed Equity Funds?
How to Setup an ESIP?
In order to set up an ESIP so that an investor can invest through it, one can follow one of the following 2 choices. These are as follows:
Using TT web
Step 1: Log in to your TT web trading account.
Step 2: You need to enter your client ID, password and your preferred equity investment and submit the information.
Step 3: Click on the “Market” tab and select “Equity SIP” from the drop-down menu.
Step 4: Duly fill in the required information and accept all the terms and conditions given.
Step 5: Press the submit button.
Using TT exe
Step 1: You need to sign in to your TT exe. trading account.
Step 2: Then, you need to enter your client ID and password and click on the option to submit.
Step 3: You need to click on the “SIP” tab, click on the “Orders” tab and finally select “Equity SIP” from there.
Step 4: Accept all the terms and conditions after filling up all the necessary information.
Step 5: Click on the “submit” option.
How to Start an ESIP?
Equity SIP allows investors to invest a small sum of money and build a huge corpus over a period of time. Here are some of the best ways to start an ESIP:
- Arrange all the necessary KYC documents on time before registering.
- Register for the ESIP from your desired financial institution.
- One can register through offline methods by visiting the financial institution’s branch or through online methods by visiting the official website.
- Choose an SIP that works best for you and matches your needs and goals.
Tax Implications of Equity SIP
The taxation policies for systematic investment plans are as follows:
- If the units of equity SIP are held for less than 1 year, the short-term gains are taxable at a flat rate of 15%.
- If units are sold after 1 year or more, long-term gains are taxable at a flat rate of 10%. Keep in mind that LTCG of not more than Rs.1 lakh is tax-free.
Who Can Invest in Equity SIP?
ESIP is suitable for investors who do not have the time to track the stock market regularly. Moreover, it is a suitable option for individuals who wish to gain equity exposure by investing a small sum in a disciplined manner.
If an individual wants to make long-term investments in stocks, they can opt for this plan. On registering for ESIP, an investor need not panic about timing the share market. An investor can take advantage of the power of compounding and create a sizable corpus in the long run.
Also Read: Best SIP Mutual Funds To Invest In 2022: Which Plan Is Best For You?
Final Word
If you have decided to invest in equity SIP, you need to select the right stocks first, which requires thorough knowledge of the market. In case you do not possess the expertise necessary for direct equity investments, you may consider investing in an equity-oriented mutual fund scheme. If you are ready to invest, download the Navi app and get started now!
FAQs on Equity SIP
Ans: Individuals might want to consider the following aspects before investing in equity via a systematic investment plan:
Brokerage rate
The reputation of the stockbroker
Investment objective
Lastly, it is essential for individuals to assess their own risk appetite before investing in the stock market.
Ans: No, the brokerage charges for equity systematic investment plans and cash transactions are not different. If you invest in stocks via an ESIP, you will not have to pay any additional brokerage charges to the stockbroker.
Ans: No, having a savings account is not enough for investing in stocks. It is compulsory for individuals to open a Demat account with a stockbroking company registered with the Securities and Exchange Board of India (SEBI) to buy and sell stocks.
Ans: Yes, investors can redeem shares that they buy via an ESIP at their convenience. This is because there is no lock-in period. That said, keep in mind that the sell orders are executed only during market hours.
Ans: The various charges associated with direct equity investments are as follows:
– Brokerage fee
– Securities transaction tax (STT)
– Service tax
– Stamp duty
– Transaction charges
– Securities and Exchange Board of India (SEBI) turnover charges
– Depository participant (DP) charges
Ans: If you want to open a Demat account, you should follow the given steps:
Step 1: Visit the official website of a financial institution offering Demat accounts.
Step 2: Download a Demat account form and fill in the important details like email ID and phone number.
Step 3: Submit the duly filled Demat account form.
Step 4: Submit all the necessary documents like PAN card and bank details.
Step 5: You need to complete the e-KYC process in order to receive your Demat account number.
Step 6: Post verification, you need to sign all copies of the agreement.
Step 7: After completing all the above processes, you will finally receive the BO ID number.
Ans: ESIPs allow investors to fix their investment amount in various shares, which will be purchased later periodically. With ESIPs, investors can invest in stocks in a disciplined manner. As a result, their investments spread over a period of time, and they can also benefit from rupee cost averaging.
Mutual funds also offer certain advantages. People who do not have the required skills to identify the right stocks or monitor them can invest in mutual funds and benefit from its professional fund management. Moreover, they have a low ticket size, so one can start investing with an amount which is as low as Rs 500.
Ans: For ESIP investments, one can invest a predetermined amount in a particular share in a systematic manner over intervals. Whereas in case of lump sum investments, the investor invests a large sum of money in one go.
The ESIP offers flexibility in the amount that one can invest and even the time period. On the other hand, a large amount is locked in for a longer period of time for lump sum investments.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
