Direct stock purchase plan
We are quite familiar with the term shares. Shares are an important constituent of stocks and these allow a person to get the ownership of the company. The ownership is partial only and is limited by the number of shares that are held by a person. There are many ways in which a person can easily get the shares of any company. These shares are traded on the concerned stock exchange in the country, where these are freely tradable. A person can easily place order for the purchase of these shares from the stock market. Alternatively, he can also approach the various stockbrokers that provide services regarding selling and buying of shares. Some times, the company also allows a person to buy the shares directly from it without any need of approaching the share market or the stockbrokers. These shares are provided to the general public by the company by way of a special plan, which is called as the Direct Stock Purchase Plan. Thus, it can be said that Direct Stock Purchase Plan or DSPP, as is commonly called as, is the plan offered by a company to the public where it allow people to buy its shares directly rather than buying through share market or stock brokers. Let us now discuss the benefits a person gets when he goes for the direct purchase of stocks.
BENEFITS OF DIRECT STOCK PURCHASE PLAN
The Direct Stock Purchase Plan is quite beneficial and thus, any person can easily go for this. First of all, as discussed above also, there are no stockbrokers that are required to be contacted for purchasing the shares of the company. This means that a person is not required to pay any type of brokerage fees or commission to these brokers and this saves a good amount for him. Generally it has been seen that the brokers are charging up to 1-2% of the total transaction value as the brokerage. Thus, DSPP is a cost effective way of purchasing the shares of a company. The other advantage of DSPP is that a person is allowed to build up his portfolio by investing in small amounts. There is no requirement of investing a big sum to get the shares directly from the company, though there is a limitation towards the maximum number of shares that can be purchased by means of direct stock purchase plan. Over the years, the person can easily make his portfolio and can enjoy the benefits too. Thus, it can be said that buying the stocks of a company directly is beneficial for a person. Let us now discuss the various aspects related to the Direct Stock Purchase Plan.
VARIOUS ASPECTS OF DSPP
There are many aspects of Direct Stock Purchase Plan that need to be understood. First of all it is to be understood that a person is required to get enrolled first in order to buy the shares of any company directly. This enrollment is company specific, that is, a person has to get enrolled for each company the share of which he intends to buy. The enrollment is done by way of registration and the registration is done when a person completes the required form and submits this along with the registration fee. This registration fee is generally small and in many cases, it is $10. Apart from the registration fee, a person is also required to pay a nominal fee towards the transaction pertaining to the direct purchase of shares. This fee is also small and is quite less than the brokerage paid to a broker for buying the same number of shares.
The other aspect that needs to be understood is that the Direct Stock Purchase Plans are in vogue in North American countries only and a person hardly find these plans elsewhere. However, France is an exception to this as there are many companies that go for the Direct Stock Purchase Plan in order to provide shares to the public.
It is not necessary that a person has to hold the shares of the company already in order to go for the Direct Stock Purchase Plan. If he is not holding the shares already, he can adopt the way of enrollment and buying of shares. If the person is already having shares, he is required to pay the nominal fee only towards the direct purchase of shares.
One of the important aspects regarding the Direct Stock Purchase Plan that needs to be understood fully is that the company goes for the DSPP mostly by way of a transfer agents or any other provider of stock services. This transfer agent help carries out the all the functions on behalf of the company relating to the direct purchase of stocks. A person is required to send the form as well as other formalities to this agent only and if there is any discrepancy regarding the purchase of shares directly, this transfer agent is to be contacted. In all the advertisements pertaining to the direct stock purchase, the name and address along with the contact number of the transfer is provided so that the buyer does not face any difficulty in future. After the issue of shares, this transfer agent maintains the list of the shareholders that have bought the shares directly and manages it too for future. Thus, in case the share certificates are stolen or are misplaced, the buyer has to contact this transfer agent to get the duplicate share certificate.
Another aspect that needs to be understood regarding the direct purchase of stocks is that a person is not required to pay any type of fee except the registration and the transaction fee to the transfer agent. There is also a minimum initial investment that a person is required to make and in most of the cases, it is $500. All the brokerage, commission etc is paid by the company only that has come up with the Direct Stock Purchase Plan. Once the shares are purchases, these can easily be traded on the exchange where the company is listed.
SO, GO FOR THE DIRECT STOCK PURCHASE PLAN
The direct stock purchase plan allows a person to buy the shares of a company directly without any brokerage or commission. It also allows a person to invest small amounts in order to build his portfolio. So, if you come to know about any Direct Stock Purchase Plan and you have required money to invest in it, you may go for it. However, there are certain aspects related to DSPP that need to be understood.
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