Most investors are aware of this method but they know it by a different name – SIP or a Systematic Investment Plan.
In this method, an investor decides on a fixed sum of money that he/ she wishes to invest on a regular basis in the equity market. Most fund houses offer a weekly, monthly and quarterly frequency option. By investing a fixed amount at different times, the investor buys more units when the markets are down and lesser units when they are high. Over a period of time, the cost per unit averages out and usually places the investment in a perfect position to earn good returns. This also helps avoid erroneous investment decisions by buying units in lump sum at the ‘wrong time’.
It is known as the Rupee Cost averaging effect because of the effect it has on the purchase price of the investment. It is usually preferred by investors who are worried about entering the market at the ‘wrong time’.