Understand Rupee Cost Averaging

Understand Rupee Cost Averaging

Rupee cost averaging is an important concept in the world of finance. The market does not move in a straight line but moves in waves. Thus even when the market is in an uptrend it will have periods of correction when the market will go down. When the market is in a corrective phase then you will see that your portfolio could be in red. Or at least some of the stocks could be in the red. You as an investor need to make use of this situation and this can be done using rupee cost averaging.

What is the rupee cost averaging?

Suppose that you brought a share worth 120 today and the cost of the share falls down to 100 the next day. You buy more of the shares because you are getting it at a cheaper price today. Thus you average out your purchase price. Suppose that your average price of the shares bought is 110. If the stock price rises to 200 the next days then you have made more profit than you would have made by buying all your shares at 120.

Timingthatmarketis not easy and this is where the rupee cost averaging comes into play. It helps you to reduce the cost of buying the shares in the times of volatility in the market.

The rupee cost averaging helps you since you do not need to time the market. This helps to reduce the purchase cost and this lets you sell the stock at a higher rate.

Rupee cost averaging helps in cases when the market is in a correction. The price is falling and this lets you average the cost of purchase and thus with this, you can make use of the market falling.

In case the market is bullish, the market will have correction phases and this lets you invest in small amounts in the market when there are dips. This reduces the average purchase price.

Things to keep in mind

The rupee cost averaging helps to maximize the profits in the longer term. But take care to understand that a stock may be falling not just because it is in a correction phase but because the company is not performing well. To be safer buy in automated trading on the market like the  Qprofit at a low rate only when you know that the fundamentals of the company are strong. So make sure that you check the health of the company before you plan to invest into it in the first place.