Rupee Cost Averaging
Rupee Cost Averaging (RCA) is an investment strategy inherent to SIP where a fixed rupee amount is invested at regular intervals, automatically purchasing more ...
Rupee Cost Averaging (RCA)
Rupee Cost Averaging (RCA) is an investment strategy inherent to SIP where a fixed rupee amount is invested at regular intervals, automatically purchasing more units when prices are low and fewer units when prices are high. This results in the average cost per unit being lower than the average market price over the investment period.
Imagine you go to a market to buy mangoes every week, spending exactly ₹100 each time. One week mangoes cost ₹50/kg, you get 2 kg. Next week they cost ₹25/kg, you get 4 kg. Over two weeks, you spent ₹200 and got 6 kg. Your average cost is ₹33.33/kg — lower than the average market price of ₹37.50/kg. SIP works exactly like this. By investing the same amount every month regardless of market conditions, you naturally buy more units when prices are low and fewer when prices are high. Over time, this brings down your average cost and improves returns.
Buy ₹100 mangoes weekly — cheap week = more mangoes, expensive week = fewer. Average cost is always lower!
SIP automatically buys more in dips, less in peaks — no effort needed from you
RCA turns market volatility from an enemy into your best friend
No timing, no guesswork — just invest regularly and let math do the work
Meera's 6-Month RCA Advantage
Meera invests ₹10,000/month via SIP. Watch how the market dips in months 2-3 actually work in her favour by giving her more units at lower prices:
| Month | NAV (₹) | Amount Invested | Units Purchased | Market Mood |
|---|---|---|---|---|
| Month 1 | ₹100.00 | ₹10,000 | 100.00 units | 😐 Neutral |
| Month 2 | ₹80.00 | ₹10,000 | 125.00 units | 📉 Dip |
| Month 3 | ₹70.00 | ₹10,000 | 142.86 units | 📉 Further Dip |
| Month 4 | ₹85.00 | ₹10,000 | 117.65 units | 📊 Recovery |
| Month 5 | ₹95.00 | ₹10,000 | 105.26 units | 📈 Rising |
| Month 6 | ₹110.00 | ₹10,000 | 90.91 units | 📈 High |
| ✅ Result | Avg Cost: ₹88.02 | ₹60,000 | 681.68 units | Value: ₹74,984 |
What Makes This Important
Step-by-Step Calculation
Meera's RCA Advantage: ₹10,000/month SIP for 6 months Average Market NAV = (100 + 80 + 70 + 85 + 95 + 110) ÷ 6 = ₹90.00 If Meera invested ₹60,000 lump sum at average NAV: Units = ₹60,000 ÷ ₹90.00 = 666.67 units With SIP (Rupee Cost Averaging): Total units = 100.00 + 125.00 + 142.86 + 117.65 + 105.26 + 90.91 = 681.68 units Average cost/unit = ₹60,000 ÷ 681.68 = ₹88.02 RCA Benefit: 681.68 − 666.67 = 15.01 extra units (2.25% more units) At current NAV of ₹110: Extra value = 15.01 × ₹110 = ₹1,651 extra profit SIP value: 681.68 × ₹110 = ₹74,984 (25.0% return) Lump sum at avg NAV: 666.67 × ₹110 = ₹73,334 (22.2% return) RCA advantage: 2.8% higher return
Frequently Asked Questions
No. RCA reduces the average cost of investment but does not guarantee profits. If the market consistently falls and never recovers, you could still face losses. However, historically, markets have always recovered from downturns given enough time.
🧠 Quick Quiz
1 questions to check your understanding