For many
years Systematic Investment Plan or SIP has always been one of the best
routes to investment in equity. This has led many stock brokers to introduce
something similar called "Systematic Equity Plan" (SEP) or in other
words, Stock SIP. Many broking houses like Indiabulls, Sharekhan, ICICIDirect
etc. have come up with such concept. These broking houses are promoting this
concept big time but is it right for the investor to go for it? Or is it
beneficial only for the brokers? Let's see.
1. No price averaging, but well, SIP
doesn't have this too
We
normally perform price averaging in stocks only when a stock has fallen by some
percentage points, say, 10%, which normally one does. But in case of SEP,
that's not the case. We buy because it's time for the purchase, without taking
into account the rise or fall. For eg. if we purchase a Stock X at Rs 100
on the 1st day of a particular month, & the price goes down to 90 after a
week and bounces back to 110 on the 1st day of the next month, we can't take
advantage of the correction. For SEP we average at whatever price we find the
share on a particular day. Is it ideal for investment. Probably, no.
2. Buying high during a morning spike
Normally,
SEP orders are placed on the specified date before the market opens which may
mean we'll buy into the morning spike. We, therefore, shall pay a higher price
than what probably we could have paid while purchasing ourselves.
3. No "Limit" Orders
Subsequent
to the last point, SEPs are normally executed as 'market' orders instead
'limit' orders - do you really want to do that? Probably never.
Then why SEP is being promoted by brokers so aggressively?
The short & simple answer is
"brokerage". Ever since entry load in Mutual fund SIP has been
stopped, the upfront commission, which used to be very lucrative, has stopped
for the broking houses. They need to compensate for that and promote SEP as an
alternative to SIP.
