What are DIPs?

Most people buy shares of their favorite companies through the help of a broker, who will charge a fee for the service. The broker’s services includes the advice and research about stocks you’re interested in. A discount brokerage will charge a much lower fee, but won’t help you with much advice or research. As a means for getting around middlemen like brokers and discount brokers, many companies offer Direct Investment Plans, also known as DIPs.

DIPs, also referred to as Direct Stock Plans, or DSPs, allow individual investors to buy stock in the company at regular, scheduled intervals. This way, you as an individual investor can go straight to the source and save some money on brokers’ fees. However, since discount brokers’ fees are so low, your savings are usually tiny. In addition, many companies that offer DIPs/DSPs attach all kinds of riders and qualifiers to their stock which is purchased in such a manner. For example, they may not offer the DIPs option unless you already own a certain amount of stock in the company. You may also be restricted from selling the stock whenever you want – that might be dictated by terms and conditions stipulated in the stock purchase agreement. Finally, while you may be dodging the bullet of broker’s fees when you participate in a DIPs program, you may still have to pay a fee to the company issuing the stock for the service. Determining whether a DIPs transaction is right for you, clearly, will take a bit of research on your part.

To learn more about DIPs and other aspects of investing, be sure to speak with a financial advisor. He or she will be able to walk you through the pros and cons of DIPs, as well as any other financial product or mechanism you might be interested in before you commit your hard-earned cash to it.