Log In Sign Up

Invest in Mutual Funds &
Get More Returns

Start Investing

SIPs have been a popular term among the investor community, and so is ‘rupee cost averaging’. Whenever one talks of investing through a systematic investment plan in an equity mutual fund, one makes sure to refer to rupee cost averaging.

Rupee-cost averaging is something that seasoned investors do when they invest in stocks. But as first-time investors lack the knowledge or expertise to continuously track the market, they are advised to invest via SIPs

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. The equity markets have always been volatile 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 tends to reduce the price of the commodity rises.

The fundamental principle of investing reinforces the same thing. It guides the investor to “buy-low and sell-high”. It means that you should buy more units of a mutual fund when the markets are down and fewer units 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, their average cost of investing increases and returns fall.

 

Benefits of SIP in Rupee Cost Averaging

An SIP investment allows you to take the advantage of rupee-cost averaging in an automated manner. For example, have a look at this table below

 

TIMEAmount PaidPrice per shareNumber of shares bought
Jan- 201720004050
Feb- 201720004841.67
Mar- 201720004247.62
Apr- 201720003458.82
May-201720002871.42
Jun- 201720003066.67
Jul- 2017200050 40
Aug- 201720004247.62
Sep- 201720004445.45
Oct- 201720003262.5
Nov- 201520003655.55
Dec- 201720004050

 

Total Investment: Rs. 24,000

Total number of shares bought: 637.32

Average price per share: Rs. 37.67

 

RCA
Rupee Cost Averaging

 

In an SIP investment, the factor of volatility is reduced and as a result, the overall gains will also increase.

Rupee cost averaging works out best in choppy markets but is useful even when the markets are in a bull run. It essentially helps you buy less when the markets are expensive and buy more when the markets are cheap.

An SIP is an easy way of doing this thanks to the benefit of rupee cost averaging.

 

Are you interested in the benefits of rupee cost averaging and want to start to your SIP investments in mutual funds? Head to ClearTax Invest where exciting opportunities lie ahead.

 

Start Small with Best Mutual Funds

Yes! I want to Invest