"Rupee-Cost Averaging," Explained
by Motley Fool Staff
Rupee-cost averaging can be a good way to protect yourself from a volatile market. It's the practice of accumulating shares in a stock over time by investing a certain dollar amount regularly, through up and down periods.
For example, you might purchase Rs 50000 worth of ABC stock every three months. You'd do this regardless of the stock price, buying 10 shares when the price is Rs50 (10 times Rs50 is Rs500) and eight shares when it's Rs60 (eight times Rs60 is Rs480).
The beauty of this system is that when the stock slumps, you're buying more, and when it's pricier, you're buying less. It's an especially good way to accumulate shares if your budget is limited. (Buying regularly through dividend reinvestment plans, or "Drips," is a form of rupee-cost averaging.) Don't drown in commission costs, though -- engage in dollar-cost averaging only if you can keep commissions below 2% or if you're buying through direct-purchase plans.
And if you're rupee-cost averaging by the book, you shouldn't be second-guessing the market, deciding to skip an installment because the stock is up or down. It's meant to be a methodical system.
Definitely Interesting like the SIP mechanism of MF's.
BTW I enjoy reading your blog and it will be great if you can have some tool or link to some tools which allow valuation of stocks.
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