What is a 'Direct Stock Purchase Plan - DSPP'
A direct stock purchase plan (DSPP) is an investment service that allows individuals to purchase a stock directly from a company or through a transfer agent. Not all companies offer DSPPs, and the plans often have restrictions on when an individual can purchase shares. The greatest benefit of using a DSPP for investors is the ability to avoid commissions by not going through brokers.
BREAKING DOWN 'Direct Stock Purchase Plan - DSPP'DSPPs often have minimum deposit requirements that range from $100 to $500. They are perfect for investors who have a long-term trading strategy and are looking for an inexpensive way to begin investing. DSPPs are an alternate path for the purchasing of stocks from a specific publicly traded company. Since the process does not involve a broker, most plans have lower or no associated fees, and have the ability to set up automatic periodic investments along with automatic reinvesting of any dividends earned.
The operation of a DSPP is regulated by the Securities and Exchange Commission (SEC) in a way similar to that of a brokerage's activities. While the mechanism for investing may be slightly different than through a broker, the financial risks associated with such investments are equally present regardless of how the stock is purchased.
While not all corporations offer DSPP options, those that do generally have information regarding the plans listed under investor relations or shareholder services within their websites or directories, and it is not uncommon for the plans to be administered by a third party. The resources listed provide information regarding any account minimums, investment minimums or fees applicable to their offerings.
Benefits to Investors
A main benefit to a DSPP is the lower costs. This is primarily due to the fact the services of a broker are not required to complete the transaction. Many DSPPs are offered online, allowing for easy access for investors to monitor and manage their accounts. Additionally, the third party administering the service also registers the sales directly on the company books. This means shareholders are not required to maintain physical certificates as proof of purchase.
Benefits to the Company
Often, offering the ability to purchase stock through a DSPP provides a company with the ability to raise additional funds at a reduced cost. Additionally, it may provide a mechanism through which new investors, such as those without the minimum fund requirements that must be deposited by some brokerages, that meet the requirements of the DSPP can gain access to invest in the company.