By definition direct stock purchase plan or DSPP is a plan enabling investors to directly purchase a company stock without a broker. Companies owning this program makes direct stock purchase plan or DSPPs available to retail investors. Other companies have transfer agents as third parties to deal with the transactions. Transfer agent here is a financial institution that has partnership with the company to maintain investors’ financial records and track account balance. Their job covers recording transactions, canceling and issuing certificates, processing mailings, and handling problems in investment.
This program often comes with low fees and sometimes they offer shares at a discount. However, it is to note that not all companies have DSPP programs. The plans could come along with certain restrictions about purchasing shares. Over the last two decades, DSPP has become less famous as investing through brokers is less expensive and more convenient. Even so, DSPPs remain offering benefits for long-term investors that do not own much money to start an investment. The purpose of DSPP is to let individual investors establish an account. This is in order to make deposits to purchase shares from the company directly.
Usually, the investor creates a monthly deposit, then the company applies this amount for purchasing shares. Every month, the plan would purchase new shares of company stock from the available money from dividend payouts or deposits. This flow is automatic to slowly accumulate shares from the company. The reason is because the plan often has low fees and sometimes no fees at all. Thus, DSPPs is less expensive way for new investors entering financial markets.