Direct Stock Investment Plan
Direct stock investment plans allow an investor to purchase stock directly from the company they want to invest in. A direct stock investment plan does not require a brokerage account, and commissions are not paid. There may be a third party administrator that oversees direct stock purchase plans; this should not be confused with a brokerage. Each company decides if they want to offer a direct stock purchase program and what the parameters will be.
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Types
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There are two main types of direct stock purchase programs: Direct Purchase Plan, or DPP, and a Dividend Reinvestment Plan, or DRIP. In order to participate in a DRIP plan, you must already own stock in the company. A first-time buyer can participate in a DPP plan. Once you are a participant in a DRIP plan, you can usually acquire additional shares through the plan.
Finding a Plan
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To find out if the company you want to invest in offers a direct stock purchase plan, go to the company's website and look under the "Investor Relations" information. If there is a direct stock purchase plan available, it should be listed in this area of the website. If you are unable to locate any information about a direct purchase plan, look under the "Frequently Asked Questions" area. It will usually list a question about direct stock purchases.
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Features
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Direct stock purchase plans are designed by the companies that want to offer them. As a result, each one is different. Some companies require an up-front minimum amount to open an account, while others will permit an investor to build their account through automatic monthly purchases. Some companies charge a flat transaction fee; others charge fees based on the number of shares purchased or no fee at all. There may also be fees for selling your shares, or other fees for maintaining your account. Carefully review the fee structure before you participate in a direct stock purchase plan.
Benefits
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Direct stock purchase programs do not require the investor to have a brokerage account. The fees associated with direct stock purchase programs tend to be lower than commissions paid to a stock broker for purchasing stock on an investor's behalf. Direct stock purchase programs permit an investor to decide how much he wants to invest in a particular company on a monthly basis.
Warning
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Some direct stock purchase programs assess fees if you choose to terminate your participation in the plan before a certain period of time has elapsed, or if you fail to reach the required minimum account value. Stocks can and do lose value; review a company carefully before you decide to purchase stock to assess whether or not it is a suitable investment for you.
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