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’.