Investing through a brokerage account can be efficient and easy. However, it will also cost you a pretty penny. If you want to cut out the middleman, i.e., buy stocks without opening a brokerage account, you’ll need to participate in an organization’s direct stock purchase plan (DSP).
What Is a Direct Stock Purchase Plan?
Companies that list on the stock exchange typically employ a transfer agent to handle the administration of share transactions. Transfer agents also manage direct stock purchase plans if a company wishes to sell its shares without employing a stockbroker.
Direct stock purchase plans help you buy shares directly through the transfer agent, without opening a brokerage account. So, essentially, by doing this, you cut out the broker and save on the brokerage fees. That said, it’s important to know that not all listed companies offer direct stocks purchase plans. There are, however, a number of large and reputed companies that offer these plans, which means you are likely to have enough choice.
Important Features of Direct Stock Purchase Plans
– Direct stock plans have variable minimum investment amounts, which typically range between $25-$2,500.
– You can make payments on a weekly or monthly basis. Doing this can reduce risk since you will be able to dollar-cost average.
– You can pay via bank debit, check, or a combination of the two.
– You can opt to have the dividends reinvested.
– Fees may be charged to set up your account, purchase shares, sell shares, and reinvest the dividends. However, there are a number of companies that don’t charge these fees.
– Direct stock purchase plans allow you to make investments in small amounts, rather than purchase a fixed number of shares. So, if you are unable to invest enough to buy a whole share, you can still buy a fraction of it.
The Bottom Line
It’s important to understand the benefits and drawbacks of direct stock purchase plans, before you decide to choose a particular route to make your investments. Remember that using a broker has certain advantages. Direct stock purchase plans are best suited to people who don’t need advice from a broker and are willing to put in the time to research various stocks.