Mutual Funds
Volatile market? Here is what you need to know about Rupee Cost Averaging
Rupee Cost Averaging can help you stay calm even when the market turns choppy. It will ensure that you make the most of the market ups and downs without losing sleep or your hard-earned money.
What is rupee cost averaging?
You can understand Rupee Cost Averaging or RCA as an approach where you invest a fixed sum of money at regular intervals, irrespective of the market conditions.
It is generally used in systematic investment plans and helps decrease the adverse impact of market volatility. Rupee cost averaging also encourages disciplined, long-term investing.
How does rupee cost averaging work?
Markets are unpredictable. They rise and fall—sometimes sharply. If you try to time your investments to "buy low and sell high," chances are you might end up buying at the wrong time or miss out altogether.
However, with rupee cost averaging, you can fully remove the need to predict the market movements. Automate your investments for a more regular and disciplined investment approach and lower your average cost per unit over time.
An Example
You decide to invest ₹1,000 every month into a mutual fund instead of investing ₹12,000 all at once. As the net asset value changes each month, the number of units you receive varies.
| Month | Investment Amount (₹) | NAV (₹) | Units Purchased |
|---|---|---|---|
| Month 1 | 1,000 | 100 | 10 units |
| Month 2 | 1,000 | 50 | 20 units |
| Month 3 | 1,000 | 200 | 5 units |
Total Investment: ₹3,000
Total Units Accumulated: 35 units
Average Cost per Unit: ₹85.71 (₹3,000 / 35 units)
Over time, you buy more units when prices are low and fewer when prices are high. This largely reduces your average cost per unit and helps smooth out the adverse impact of market volatility.
Conclusion
Start an SIP, stay consistent, and let market volatility boost your profits over time. Give rupee cost averaging a go, and watch your financial journey turn smoother and smarter.
Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.
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