Direct stock purchase plan (DSPP) refers to a program that allows individual traders to buy the stock directly from the company, without any help from a broker. Some companies that offer this plan usually make it available to retail traders. While some other companies use a third-party administrator to handle the transaction.
With this plan, traders will get lesser fees. Sometimes, they even get the chance to buy that shares of stock at a discount.
Yet, not all of the companies provide this plan. Some of those who offer the plan, sometimes, also have a restriction on the time traders can make the purchase.
How does It Work?
In DSPP, traders can open an account. Through that account, later, the traders can make the deposit that they will use to purchase the stock on that company in the future.
After that, the traders will make a monthly deposit. Then, the plan will buy new shares of stocks, or a fraction of the shares, with the money available on that deposit.
This plan is popular for its automatic system. For a newbie trader, this plan can be the right choice. It has low fees (even sometimes no fees) and automatic. Besides, the minimum deposit for the account can be as cheap as $100 to $500.
If you want to try one of the most common direct investment, dividend reinvestment, you can set your DSPP account to do it. That way, the system will automatically use the dividend payment in your account to purchase new shares of stocks.
The only drawback of this plan is that the shares in it are illiquid. Thus, traders may face difficulties to re-sell the shares without the help of a broker. Consequently, this plan will be the best work for a long term investor.
The Issuer
For the companies that issue the stock with this plan, they can raise additional funds at a lower cost. These companies usually give information about their DSPP plans on their website. Traders just need to go to the investor relations, shareholders service, or frequently asked question sections.
There will be details about the plan, ranging from the minimum deposit, the fees, the trading details, to the investment minimum.
Writer: Lisa Ramadhani
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