ESIP: Meaning, Benefits & How To Invest In Equity Systematic Investment Plan
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13 January 2022Systematic Investment Plan (SIP) receives great acceptance among mutual funds investors. An individual can purchase shares in a similar way by using a facility known as equity SIP (ESIP), offered by the brokers. By opting for this investment route, individuals can purchase stocks and exchange-traded funds at specific intervals.
If you want to know about the basics of ESIP, keep reading!
Table of contents
What Is Equity SIP?
A systematic investment plan helps in mitigating the risk associated with stock market swings. 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.
Types of ESIP
If you want to invest via this plan, you can choose between quantity-based SIP and amount-based SIP.
Quantity-based SIP
It is a plan in which an investor buys a fixed number of shares for a particular time frame.
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.
Also Read – A Guide To Taxation Of Equity Linked Saving Scheme
Features of Equity Systematic Investment Plan
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:
Diminishes 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.
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 The amounts are automatically withdrawn from your savings account periodically.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.
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.
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.
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, he/she 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 – What Are Focussed Equity Funds?
Tax Implications
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.
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.
In the case of such schemes offered by fund houses like Navi, the portfolio is managed by fund managers who have many years of investment-related experience. They conduct thorough research and analysis before selecting a stock. To start an SIP, you can also choose to invest in Navi Mutual Funds. With Navi, you can start an SIP with just Rs. 500. You can do so through platforms like Zerodha, Paytm Money, and Groww, to name a few.
Frequently Asked Questions
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
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
