Systematic Investment Plans (SIPs) in equity stocks are nowadays creating buzz around us. And why not? Equity SIPs are delivering handsome returns side by side mitigating a considerable amount of risk present in equity investments. But in comparison to mutual fund sip, these are a bit risky investments.
Why are Equity SIPs riskier than Mutual Fund SIP?
There are many reasons for investing in mutual fund sip. The first and primary reason is mutual funds are managed by experts known as Fund Managers; unlike Equity SIPs where you will be managing everything. Next, in mutual funds there is a pool of stock of various companies, so both return and risk get averaged. But in the case of Equity SIP investment, you are selecting only a single stock for investments, and gains or risks are all yours. Equity SIPs are more uncertain than Mutual Fund SIPs.
7 Tips of Equity SIP That Will Give You Better Return
Investors of Mutual Fund SIPs are much relaxed and returns more sustainable than Equity SIP, so the later requires an extra bit of care and guidance to flourish. These stock tips are shortlisted out of investment experiences and market research.
1. Equity SIP Investment requires a closer watch:
When you are investing in an equity share for superfluous gains you must be extra cautious too. There is no scope for relaxation for an Equity SIP investors. You have to study about the stock and do the research yourself about its prospects. A company’s stock’s prospects depend on the company’s profitability, its order books, innovativeness, employee turnover and hundreds of other things. These things are not regularly studied by a normal amateur investor, so they should better study various sites and reports on that and go through the advice of the professionals in the market.
2. Equity SIP is recommended for Large Cap stocks:
The logic behind such a SIP investment tip is that the companies with big capitals are more or less well established and they have their ready markets for their business. Companies with such a stature generally follow proven corporate policies and operate under a strict financial discipline. So it’s a common belief that large-cap stocks have good prospects over a longer period of time, even if they keep down for a short span of time.
3. Adopt a stock specific approach:
An investment strategy in equity shares should be judged on one to one basis. There cannot be a blanket policy for every stock. Though market sentiments affect the stock prices within a shorter time period, it cannot be a reason for selecting or rejecting a stock for investment. The study should be stock specific; else investments based on overall economic conditions may leave the investor cry.
4. Long-term approach is recommended:
An investor must take a long-term approach while investing in an equity sip. The period of investment should be preferably for 5 years or more so that the investment in Equity SIP returns fairly. The methodology in Equity SIP works on cost averaging; means your investment cost in a specific stock gets averaged due to consistent investment throughout a period of fluctuation in market prices. The longer the period of regular investment, cheaper is the price of a stock and better the rate of return.
5. Track previous trends:
Though past performances don’t vouch for the guarantee for future, yet it’s an important yardstick to judge a stock for investment. Turnover growth, profitability, dividend payment history- these past performances give you an idea about the company. It also helps you in selecting a particular stock for investment. It’s true that the performances may not repeat in the future, but consistency in performances in the past makes the stock more reliable for investment.
6. Carefully study the numbers:
Statistics play a vital role in investment. Before investing in a stock go through these numbers like Net Profits, Profit Before Interest & Tax, Profit Before Tax, Earning Per Share, Book Value Per Share, Dividend Per Share, Debt-Equity Ratio, Asset Turnover Ratio, Current Ratio, Market Capitalisation Ratio etc. A fair comparison of the statistics between the stock helps in judging a stock for investment or dejection.
7. Stay invested in volatile conditions:
The primary condition for gaining from Equity SIP investment is to stay invested no matter how’s turbulent the market conditions are. As it has been mentioned earlier that market fluctuations are inevitable and so as their effects on the stocks, but stocks with good track records surely come out of the correction phase. A cycle works at a stock price- goes up and down after a few sessions. But if you withdraw during the downtime of stock, it would be a mistake and you may turn into losses.
The tips listed above are deduced out of long SIP investment experiences and proven investment strategies. These tips don’t guarantee returns in equity investment but help extensively in judging a stock for investment. They don’t help in quantifying returns out of equity SIP investment but helps in creating a notion of how returns can be made from investment in Equity SIP.