SIP stocks for high returns

Create your own portfolio by buying individual stocks

With the stock market benchmark indices touching new highs, it is difficult for retail investors to resist the lure of direct equity investment. But this has its own risk, especially if the stocks are not fundamentally sound.

Typically, to get a flavour of stocks, investors are advised to take the mutual fund route, as they can purchase a basket of stocks with limited money. The monthly systematic investment plan (SIP) route is preferred because they are able to invest smaller amounts over time.

Another option being introduced by brokerage houses is the creation of a personal equity portfolio by investing small amounts in select stocks every month.

How does it work?
To create a personal equity portfolio, an investor buys stocks directly from the market on a daily, weekly, fortnightly or monthly basis. Depending on his personal capacity, he can regularly buy as few as two or three stocks.

“When a person invests in mutual fund SIPs, his purpose is to average out the cost of his investments through disciplined investing. He benefits from the wide basket of stocks and does not have to worry about daily market fluctuations. Creating a personal equity portfolio works on the same principle,” says Ambareesh Baliga, vice-president, Karvy Stock Broking.

Although brokers advise their clients to help build a portfolio, these services cannot be compared to portfolio management services (PMS), where a manager receives a fee for his/her services. The brokerage earned on the trade is the only remuneration.

MF SIPs versus personal SIPs
Financial planners say individual investors should play safe by betting on top 50 or 100 stocks, or relying on suggestions from their brokerage houses. Another advice is that such investments should be only a small part of their overall investments — about 20-25 per cent of the equity exposure.

“Although the common thread is cost averaging, while not timing the market, the inherent risk associated with direct equity investment remains the same. A mutual fund combines the best of both and has a higher safety margin,” says Nitin Rakesh, managing director and CEO, Motilal Oswal Asset Management Company (AMC).

Motilal Oswal AMC will soon launch an SIP for its MOSt-Shares M50 exchange traded fund (ETF). Brokerage house ICICI Securities has already launched an SIP service that allows investments in stocks and ETFs.

Investing in an equity mutual fund SIP directly through fund houses will be cheaper, since the mutual fund distributor may charge one per cent of the total value as advisory fees. Depending on the fund’s corpus, fund houses charge recurring expenses that can be anywhere between 2-2.5 per cent (on average) on every instalment. While this cost is not charged upfront, it is adjusted before declaring the net asset value of the fund. Besides, redeeming your SIP before a year can also mean an exit load, in case of a few schemes.

On the other hand, brokerage charges can differ depending on your deal with the broker. For retail investors who want to buy one or two shares at a time, charges can be as low as 0.05 per cent basis points, and go up to a maximum of 0.50 per cent an investment.

“It depends on the volume being generated by the investor. For smaller investors, the charges will be more,” says a broker. So, if you buy shares worth Rs 10,000, you will end up paying Rs 50-600 as brokerage charges an investment.

The advantage of a mutual fund SIP over a diversified portfolio is that it allows an investor to hold. But, you don’t own any particular stock. Instead, you hold mutual fund units. A personal SIP, on the other hand, actually lets you own those high-value stocks.