What is Rupee Cost Averaging

There are many investors who prefer to invest in lumpsum into an asset class and forget about it. And there so many investors who are not able to invest in an asset class at one go. So they do it by investing a fixed sum regularly.

When one invests in any asset in one go s/he buy the asset at prevailing price at that time. S/he is not get affected by price of asset at the buy price as her/his buying price is fixed. But one who invests a fixed sum regularly s/he buys assets at different prices.

In financial market there is always volatility. So price of assets changes. Some times the price increases and some times the prices falls. And an investor who keeps investing regularly is forced to buy the assets on the prevailing prices. Some time at higher price and some times at lower price. It feels to her/him that he is making loss but when taken care s/he finds that her/her average buying price is lower than that of the lumpsum investment’s buying price. This effect is called rupee cost averaging.

One keeps buying assets at different price even though her/his average buying price is lower than one time buying price. As it is the average price over a time period so this rupee costing average price is always lower than the highest buying price and higher than the lowest buying price.

This rupee cost averaging gives investor a positive effect on her/his nominal return. So it is beneficial.

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