Document
Index

What is Rupee Cost Averaging and How It Works

Updated on: Jan 11th, 2022

|

2 min read

SIPs have been a popular term among the investor community, and so is ‘rupee cost averaging’. It is something that benefits you when you invest in equity instruments. As a first-time investor, you may lack the required knowledge or expertise to track the market continuously, and it is for this reason that you are advised to invest via the SIP route. We have covered the following in this article:

Concept – Rupee Cost Averaging

The concept of rupee cost averaging lies in averaging out the cost at which you buy units of a mutual fund. Market volatility is part and parcel of equity investments, reflecting the ups and downs of the economy. If you recall the law of demand, it says that a higher quantity of a commodity is purchased when it is least expensive. Conversely, the demand reduces when the price of the commodity increases.

The fundamental principle of investing reinforces the same thing. It guides the investor to “buy-low and sell-high”. It means that you need to buy more units of a mutual fund when the markets are down and fewer when the markets are up. However, most of the investors end up doing just the opposite. They start buying when the markets are rising and suddenly redeem upon a slump. Ultimately, the average cost of investing increases and returns fall.

Benefits of SIP in Rupee Cost Averaging

Investment via SIPs in mutual funds will allow you to take advantage of rupee-cost averaging in an automated manner. Take a look at the following table to understand this concept better:  

TIMEAmount Paid (Rs)Price per share (Rs)Number of shares bought
Jan- 20172,0004050
Feb- 20172,0004841.67
Mar- 20172,0004247.62
Apr- 20172,0003458.82
May-20172,0002871.42
Jun- 20172,0003066.67
Jul- 20172,0005040
Aug- 20172,0004247.62
Sep- 20172,0004445.45
Oct- 20172,0003262.5
Nov- 20152,0003655.55
Dec- 20172,0004050

Total Investment: Rs 24,000 Total number of shares bought: 637.32 Average price per share: Rs 37.67

RCA
Rupee Cost Averaging

Rupee Cost Averaging

By investing through SIPs, market volatility is mitigated to some extent, and as a result, the overall gains will increase. Rupee cost averaging works out best in choppy markets but is useful even when the markets are in a bull run. It mainly helps you buy less when the markets are expensive and buy more when the markets are cheap. A SIP is an easy way of doing this due to this benefit of rupee cost averaging.

Do you want to get the benefit of rupee cost averaging by starting your SIP investments in mutual funds? Then, head to ClearTax Invest where exciting opportunities lie ahead.

inline CTA
Get an expert at affordable price
For ITR, GST returns, Company Registration, Trademark Registration, GST Registration
Can't get yourself started on taxes?
Get a Cleartax expert to handle all your tax filing start-to-finish
Help and support
close
Loading Chat ...
Chatbot LogoChatbot Button
summary-logo

Quick Summary

SIPs and rupee cost averaging help in investing in equity instruments by buying more units when markets are down and less when they are up. It involves buying low and selling high, benefiting from market volatility through SIPs in mutual funds. Automating this process helps in maximizing gains and managing risk.

Was this summary helpful?
liked-feedbackliked-feedback

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use

ISO

ISO 27001

Data Center

SSL

SSL Certified Site

128-bit encryption