Posted: 10 Nov 2009 06:58 PM PST
Sameer is a common investor. He wants to invest in the stock market, but is worried that the market will fall after he invests as the market has run up too much too fast. But at the same time he is worried that the market may continue to rise without a meaningful deep correction as it has being doing so since the last 2-3 months and he might miss the rally and the potential gains that he would make with it. Sameer is in a dilemma whether he should jump into the market immediately at the current level or continue waiting for the correction which refuses to come. In short here Sameer is trying to time the market which lot of common investors try to do. Many a times common investors get it wrong when they try to time their market entry and have burnt their fingers due to the market fall post their investment. Or many a times many investors have been left on the sidelines watching the markets go up, waiting for the correction endlessly which never comes through when required. Concept of Rupee Cost Averaging The simple solution to the problems of people like Sameer is Rupee Cost Averaging. It is very difficult for a common man to predict the day to day movement of the stock markets. Hence it is best to start investing on a staggered basis by making regular monthly investments. This helps the investor to spread out his investments evenly over a period of time. This process of making regular monthly investments over a period of time at various market levels is known as Rupee Cost Averaging. It is not always possible for an investor to buy at the lowest point and sell at the highest point. Rupee cost averaging helps the investor to reduce this risk of timing the market to a great extent.