mutual fund

There is very disciplined mutual fund scheme where an investor can get into Systematic Investment Plan to get the advantage of Rupee Cost Averaging.
Let's discuss how the systematic investment is helping in falling as well as rising market.

| Falling Market: -

In falling market, the market prices tend to go towards lower margin. Consider a situation where investor every month puts in Rs.1000. for six months. Following is the chart showing market price in consecutive months with number of units owned by the investor.

At the end of this six-month period, the total investment is of Rs.6000 and number of units owned are 625 units. This makes the average price per share Rs.9.60. In this though the investor is not sure of high returns due to declining markets, at least the loss can be minimized. If the investor had put the whole amount of Rs.6000 at the beginning of the period the number of units owned would have been 400. The value of which would have become just 1200

| Rising Market: -

In rising market, the market prices tend to go towards higher margin. Consider the same situation where investor every month puts in Rs.1000. for six months. Following is the chart showing market price in consecutive months with number of units owned by the investor.

At the end of this six-month period, the total investment is of Rs.6000 and number of units owned are 504.17 units. This makes the average price per share Rs.11.9. In this though the investor is sure of high returns due to rising market prices, to maximize the profit. If the investor had put the whole amount of Rs.6000 at the beginning of the period the number of units owned would have been 400. The value of which would have become just 1200.

| Steps for Rupee Cost averaging: -

• The primary decision to be taken by the investor is the amount he is going to invest every time. The amount should be chosen such that it will be affordable regularly over the long-term basis.
• Then the investor should decide how frequently he is going to invest such as each month, each quarter, each six months.
• The basic principle is the investment should be done without fail irrespective of market fall or rise.
• The day-to-day fluctuations don't matter in this concept. Thus investor should have long-term perspective.