Investing in the stock market has become one of the successful and popular strategies. The popularity of the stock market has led to open different platforms to invest in the stock market. Investing in the share market without a broker is one of the options which is being accepted by traders.
Nowadays with changing scenarios and global pandemic digitalization has become a common need in any product. Although investment in the stock market has been available in online mode for many years. The comfort of buying and selling stock without a broker digitally is something that has gained recent popularity. This type of investment plan is known as Direct Stock Purchase Plan (DSPP). This plan helps the investors to connect with the company directly with the help of a third party. Moreover, it comes with various benefits like no brokerage fees. To understand it further let’s discuss what exactly is DSPP.
Direct stock purchase plan
A direct stock purchase plan is the investment plan for the people who have a goal to obtain a single company’s stock. It is also one of the simplest methods to invest in stocks without a broker. It is created to boost investors for a small investment in companies of their choice straight from the company. The process is to transfer money directly from their savings account created for the purchase of stocks or from the dividends earned by the trader. The third party is mostly any bank of the companies or any reputed company. Some of the companies provide this service with another third party as well.
DSPP has different merits and demerits which need to be considered before going forward with the investment.
No Brokerage fees
In DSPP, the brokerage fees and commissions for buying and selling the stocks are eliminated. It is one of the major reasons for attracting traders to invest through DSPP. DSPP is known for choosing the stocks which are loved by the traders without any other step.
DSPP can be proved as a passive growth opportunity as mentioned earlier traders choose their favorite stocks and the automatic investment plan is created which is linked to a savings account and then the money is automatically withdrawn to buy the stocks.
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Lack of diversification
DSPP is very specific to buy specific stocks you like; this leads to a reduced number of stocks and there is no room for diversification. This also forces investors to stick to the same industry and even to the same specific company they have decided to invest in.
The DSPP major feature is no massive brokerage costs. However, the major disadvantage with DSPP is Automatic investment and initial set-up fees. These fees are required to start a DSPP account. When the trader starts investing in the DSPP. In DSPP multiple of the accounts are associated with the purchases.
In DSPP the trader has to make multiple accounts for buying different stocks, and keeping track of all becomes complex. This is the major reason traders appoint brokers for an easy and smooth process for buying and selling stocks. The DSPP also looks difficult to short term traders as they will incur high costs if they will have to close all accounts after some time.
Trading without a broker is apparent with DSPP. Major benefits and drawbacks are discussed above to make a discrete decision of earning stocks without a broker. However, as discussed above DSPP has more demerits than merits. The trader should understand the process appropriately before selecting DSPP investment.
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