Rupee cost averaging becomes beneficial when you invest in equity investments. If you are planning to invest in Kotak e-Invest Plan for the first time, then you might lack the basic knowledge surrounding it. This article explains the concept of rupee cost averaging and how to implement it.
Understanding Rupee Cost Averaging
The process revolves around averaging out the cost of purchasing mutual funds units. Market volatility is a huge part of equity investments, reflecting the economic highs and lows. According to the laws of demand, any item gets purchased the most when it’s the least expensive.
The demand for the item reduces with an increase in the price. The basic principle of investing revolves around a similar concept. It means that investors are supposed to purchase higher units of a mutual fund when the price is low and purchase fewer units when the price rises.
But investors tend to do the exact opposite. They often keep purchasing funds when the markets rise before suddenly arriving at a slump. Consequently, the average cost of investing increases and returns reduce.
Rupee cost averaging influences investments at regular intervals without considering the unit price. With regular investments, investors can enjoy investing in upmarket as well as downmarket. Therefore, commitment remains a key factor behind rupee cost averaging.
The frequency of investments doesn’t matter after a certain point. But the investor needs to remain patient and stay invested even during an economic downfall. It increases the chance of a huge long-term capital appreciation.
Benefits of Rupee Cost Averaging
- It enables investors to get maximum value for their investments in a volatile market.
- It eliminates the need for monitoring the stock market daily.
- It is good for hedging when the market is going downward.
- It offers mental satisfaction to the investor because investments remain in safe hands.
- It provides huge flexibility and creates better chances for wealth accumulation.
Things to Know About Rupee Cost Averaging Before Investing in Kotak e-Invest Plan
Before you decide to invest in Kotak e-Invest Plan, you must know the following about it:
- Most Suitable for Bear Markets: The falling prices guarantee low average cost over time.
- Applicable for Bull Markets Too: Rupee cost averaging is pretty useful even in the bull market when the share prices keep rising during a certain period. Analysts often recommend investing a lump sum amount at the cheapest rate during this time.
Concluding Words
Rupee-cost averaging is highly beneficial for maximising your profits in the long run. But you should know that it will depend on the stock’s future value. If the stock falls consistently in the long run, then investing in it can make you face huge troubles. Even in the long run, it might have fewer chances of rising.
Thus, lowering your average cost makes no sense in this situation. Selling the stock will help you cut the losses. Buy a stock at lower rates only when you are confident about its future value. Always avoid companies in debt while practicing rupee-cost averaging.
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