What is Rupee Cost Averaging?

Though this may not be always the perfect investment strategy, choosing to rupee cost averaging has many benefits to help you in the long run.

Rupee cost averaging is the habit of investing a fixed amount of money over a period of time, regardless of market movements.

For example, if you decide to invest Rs.10,000 on the 1st of every month, for 2 years, you will be following the route of rupee cost averaging. There is no variation in the amount you choose to invest or the timing of investment

Systematic Investment Plan

Systematic Investment Plan(SIP) works best in case of rupee cost averaging. Lets assume that you have Rs.1,20,000 sitting in cash that you can invest right now. You may choose to invest Rs.10,000 every month for a period of one year. This is the strategy which SIP follows. 

As SIP follows fixed rule, independent of market performance, it is unemotional, diversifies your unit price and makes you less affected by the market movements which is normally there.This is best suited for salaried individuals who receive their income on a monthly basis. 

In addition to the above, it also brings in discipline to your investment style. As you all know that you should not put all the eggs in one basket, SIP brings in the diversification in your investments. However if you choose to invest in lumpsum, it will build an emotional investment strategy perspective and any market fluctuations can have a long term impact on your investment decision.

Alternatively, SIPs can hedge you from trying to time the market which is generally a losing investment strategy over the long run. It also minimizes the chances of feeling regret and possible anxiety that you invested when the markets were high.

To recap, choosing to rupee cost averaging has many positive behavioral and psychological benefits that can impact your investment style. The most crucial thing is whether to pick the SIP route or lumpsum and getting started.