Learn something new every day
More Info... by email
A direct purchasing program is a program designed by companies to make available stock for sale to the general public directly, without going through a broker. It is considered one of the easiest ways to get involved in the buying of stocks because there is usually no minimum purchase or broker fees. However, there may be some small setup fees in establishing an account.
At first, those interested in a direct purchasing program had to look for a public utility as these were the only types of companies able to offer such a program. However, rule changes by the Securities and Exchange Commission (SEC) in the 1990s led to the growth of direct purchasing programs among other companies. Today, there are thousands of companies which offer a direct purchasing program.
A direct purchasing program is similar to a dividend reinvestment plan. However, in a dividend reinvestment plan, investors must already own stock in the company. With a direct purchasing program, no previous ownership is necessary.
A variation of the direct purchasing program is the employee purchasing program. Many companies may offer this as a benefit to its employees. It allows employees to purchase shares of stock as part of an investment plan. In some cases, this stock may be purchased not only with money from the employee, but with supplemental contributions from the employer. This type of direct purchasing program allows the employee to have a small amount of ownership in the company and is often a selling point for companies, both with employee recruitment and among customers, who may feel employee ownership leads to a better product.
Those looking for a direct purchasing program may have to do a little bit of research. These SEC-regulated programs are not able to be advertised and therefore are harder to find. However, there are a number of Web sites that do offer lists of those companies offering a direct purchasing program. These Web sites may even offer a medium through which a purchase can be performed for a small fee.
While it may be tempting to use a direct purchasing program simply to avoid brokerage fees, this is not a wise strategy, financial analysts say. While there are good companies out there offering stock directly, there are also some that may not be doing so well in future years. Therefore, careful study is advised before any sort of investment is made. Unlike savings accounts and some other sorts of bank accounts, investments in stock are not guaranteed and can go up or down.