Definition of Rupee Cost Averaging
Rupee Cost Averaging (RCA) is an investment strategy where you invest a fixed amount of money at regular intervals, regardless of the market price — which automatically results in buying more units when prices are low and fewer units when prices are high.
This is the core principle behind SIP investing. Over time, RCA lowers the average cost per unit compared to a lump-sum investment made at a potentially high price. It eliminates the need to time the market — a task that even professional investors consistently fail at.
Example: You invest ₹5,000 each month. When NAV is ₹100, you get 50 units. When NAV drops to ₹50, you get 100 units. When NAV rises to ₹200, you get 25 units. Your average cost is lower than ₹116.67 (the average NAV), because you automatically bought more at lower prices. This psychological and mathematical advantage makes SIP the preferred investment method for most Indian retail investors.