Single-stock systematic investment plans gain among small investors

Illustration: Ajay Mohanty
Single-stock systematic investment plans (SIPs) are catching the fancy of small investors, particularly those preferring direct investing over the mutual fund (MF) route.

Broking officials say a large portion of their active clientele have subscribed to single-stock SIPs and the interest is expected to go up as markets continue to do well. Experts say this is a typical bull market trend, with the risk appetite among small investors going up at such times.

Single-stock SIPs are essentially recurring investments in shares of a single company or select companies. For instance, an investor is optimistic on the long-term prospects of Maruti Suzuki. However, he doesn’t have a huge corpus for making a big one-time investment. The brokerage provides an option to put a fixed sum (say Rs 10,000) every month into the stock. This helps in accumulation of a stock over a longer term and in ironing out stock price volatility.

Similarly, brokers are also recommending a basket of stocks where an investor can pledge to put in a fixed amount of money every month. Unlike MFs, such baskets needn’t follow the Securities and Exchange Board of India’s (Sebi’s) norms. Hence, the composition or weightage of the stocks can be altered in line with the requirement of the investor or broker. Most of these baskets have three to five stocks; hence, a single stock has 20-30 per cent weight against the Sebi norm of 10 per cent maximum weight per company in an MF scheme. In a lot of such basket SIPs, brokers also provide advisory services to the client, based on which he could alter the basket if he wants to.

“These products have become very popular among small and mid-size investors who want to purchase a bigger quantity of shares in a company or a group of companies but are unable to do so in a single go. These are simple and convenient, and require minimum documentation. These products will continue to be popular as financial discipline among investors improves,” said Deven Choksey, managing director, KR Choksey Shares & Securities.

The mutual fund SIP book has soared to Rs 60 billion a month. A lot of brokerages see this as an opportunity and are persuading investors to consider recurring investments directly into equities.

The cost incurred by investors in single-stock SIPs are also much less than that of an MF, as no additional costs are involved. In MFs, the expense ratio is 1.75 to 2.5 per cent; a single-stock SIP’s is 0.25-0.5 per cent.

Market participants say brokerages are increasingly looking at innovative products as the culture of equity investments increases. Many retail brokerages are into allied activities such as investment advisory, fund and insurance distribution.