Understanding How To Invest In Share Market Without a Broker: Making investments in the stock market can be rewarding. However, these investments can be time-consuming and costly if you consider taking the services of a broker.
While a personal stockbroker can help investors make sound investments with the help of their experience and professional acumen, they can charge hidden fees.
Keeping this concern aside, how can investors know that a broker is offering genuine advice to contribute to the investor’s wealth gain and not earning money themselves?
Due to the penetration of the internet, investors no longer need to depend on a broker or any kind of third party for stock investment.
Since full-service brokers charge hefty fees for their wide range of services, individuals nowadays prefer to invest in the market without the support of a broker.
They think building their own portfolio according to their own needs is much better than the recommendations provided by the large and big brokerage houses.
So, in this article, we will walk you through the steps which help individuals to invest without a broker. Read on to find out more on How To Invest In Share Market Without a broker? If the primary goal is to get a single company’s stock in the most direct way possible, one of the below-mentioned plans can help.
Direct Stock Plans – What are they?
The simplest and most-followed method of buying stocks without the help of a broker is with the help of the company’s direct stock plan (DSP). To help small investors buy shares directly from the company, these plans were launched years ago.
Investors are able to buy the shares by transferring money from savings accounts. The company can come up with minimum investment amounts for both the initial purchase and for any purchases which an investor does at a later period.
At times, these minimum amounts are lesser than the stock’s price. Thus, this enables an investor without much capital to purchase small pieces of the company.
While some companies choose to offer DSPs directly to retail investors, there are companies that take the services of transfer agents or other third-party administrators for the management of these transactions.
Just like an individual gets a bank statement, the direct stock purchase plan releases and sends statements. These statements contain critical and sensitive financial information like the number of shares an investor owns, any dividends received, any sort of purchases or sales made, etc.
Before coming up with the decision, let us have a look at the advantages and disadvantages of the DSPs. First, let’s cover the advantages:
Advantages Of Direct Stock Plans
- With the help of a direct stock plan, investors can save hefty brokerage fees and commissions which are charged for buying stocks from full-service brokers. Therefore, these plans are proven to be cost-effective.
- A direct stock plan can also be considered a passive investment opportunity within the hands of an investor. This is because they can set up an automatic investment plan. The benefit of this plan is that money can be withdrawn from their savings account for stock purchases.
Disadvantages Of Direct Stock Plans
After having a look at the advantages, let us now understand the disadvantages associated with DSPs.
- While selecting this option, investors are required to pay an initial set-up fee. This fee is charged by the companies to the investors for allowing them to open an account. Even though the cost is low, there is this small set-up fee that investors should be aware of.
- Secondly, investors are required to pay an automatic investment fee. This fee varies from company to company.
- Lack of diversity is another drawback of a direct stock plan. Unless an investor invests in a range of different companies across different industries, the investments won’t be having the diversity which is needed.
- Investors don’t have control over the trading price and date. Some of the stock purchases can take several weeks for execution.
Investing through Dividend Reinvestment Plans
Once an investor owns shares of stock in the company, that investor has 2 choices. First, they can take the monthly dividends in their respective savings account.
Second, they can avoid taking the dividends and choose to reinvest them for the purchase of additional stock. This second option is known as a Dividend Reinvestment Plan.
DRIPs are combined with cash investment options which are like direct stock purchase plans, giving the ability to purchase more stock any time during the year, not just 4 times per year when the company issues dividends.
Opting for a dividend reinvestment plan is simple and involves less or zero commission fees. Once an investor opts for it, the entire process is automated.
Therefore, investors don’t have to worry about monitoring it. DRIPs enable investors to buy fractional shares i.e., buying less than 1 full share at a time. As time passes, buying fractional shares is quite lucrative.
This is because rather than holding on to cash, it gets invested right away. Enrolling in a DRIP also enables an investor to enjoy the benefits of dollar cost averaging. Over time, an investor gives an average cost for the shares.
The disadvantages of DRIPs are the same as those of DSPs. The fees can be expensive depending on the company in which an investor is investing. Diversification is the essence of making investments. Most investors think about diversifying their portfolios, and this is a little difficult with DRIPs.
Even though dollar cost averaging and buying fractional shares are beneficial, DRIPs don’t allow the investor any control over the purchase date of the shares. Therefore, maintaining records for tax purposes is difficult.
Also Read: How To Become A Broker In Stock Market? Steps, Qualifications & More!
Above are some of the steps which can help individuals make their investment decisions without the help of full-service brokers. If brokerage fees are your main concern then one can also choose discount brokers.
Full-service brokers provide a range of services and investment products. Therefore, their services are expensive. On the other hand, discount and online brokers levy small commissions, but they don’t provide investment advice.
Full-service brokers provide personal advice, retirement planning, and other services. In return, they levy high fees for their advice. On the other hand, discount online brokers are good options for self-directed investors. They are beneficial to investors who want to conduct their research.
Some individuals prefer making investments using their own investment techniques, and they choose to go for one of the above-written methods.
Most of the time, it does not matter which method to choose. However, first-time investors are required to have complete knowledge of equity market investing before entering this space.
That is all for the article on How To Invest In Share Market Without a Broker? Do let us know your views in the comment section below. Happy Investing!
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