Mutual Funds - Articles of Interest
Rupee Cost Averaging
Stock markets world over are characterised by ups and downs. Predicting right moment to enter and exit the market consistently is virtually impossible. Best of fund managers also find it difficult to predict stock markets. This unpredictability is both an opportunity and threat depending upon how you use it. Here is a proven investment strategy that attempts to take advantage of this volatile nature of the stock markets. This strategy is called Rupee Cost Averaging.
Simply put, Rupee Cost Averaging is a disciplined investment practice that takes the guesswork out of "timing" the markets. This strategy involves investing a fixed amount in the same investment at regular intervals - say, every month or every quarter. The essence of this strategy is that more units are purchased automatically when prices are low and fewer units when prices are high. Over time, this results in the average cost per unit - the money you pay - being lower than the average price per unit.
How It Works
It is important to note that although Rupee Cost Averaging eliminates the guesswork involved in market timing, it does not guarantee a profit or guarantee against loss in a declining market. However, with Rupee Cost Averaging you avoid investing too much when the market is high or too little when the market is low.
How To Make It Work For You?
- Decide on an amount that you are comfortable investing regularly over a period of time. (Any amount say from Rs. 2000 onwards)
- Choose how often you want to invest, say, monthly or quarterly.
- Maintain a long-term perspective. Rupee Cost Averaging works best over extended period of time.
- Invest regularly; do not be influenced by short-term fluctuations in the markets.