Over the past one year, equity markets have been far from being attractive as the returns have drained out with frequent ups and downs. Today, the NSE Nifty closed with a fresh 52-week high of 25,843.15. However, it still remains below its all-time peak of 26,277 that was reached in September, 2024. In equity markets with high volatility, an approach to systematic invest can help investors navigate fluctuations more effectively to their advantage and increase their returns over time. I am sure, the earlier summit will be reclaimed soon, hopefully tomorrow during Deepawali mahurat trading.
Opportunities during market dips
During the months of February and March this year, the Nifty index hovered around the range 22,000–23,000, offering opportunities to investors to accumulate at lower prices. Being systematic with constant periodical investments over a longer period of time can better help in wealth accumulation. Returns can also be improved through smart strategies. The Systematic Investment Plan (SIP) works best with smarter approaches like buying more during dips and less when markets are peaking.
Smart approach to SIP
Smart SIP is an enhanced investment strategy that enhances traditional Rupee Cost Averaging by changing the investment amount according to market trends. The strategy aims to increase gains by purchasing more units when markets are bearish and less when markets are bullish..\
The magic of Rupee Cost Averaging
One of the biggest advantages of SIP investing is Rupee Cost Averaging (RCA) or Dollar Cost Averaging (DCA). The mutual funds with their automated systems are convenient way to achieve RCA in equity investments. It works as follows:
- When the Net Assets Values (NAVs) fall, the fixed SIP amount buys more units of mutual fund.
- When the NAVs rise, the fixed amount buys lesser number of units of mutual fund.
Over time, RCA helps in averaging the purchase costs, thus, softening the impact of swings in volatile markets. As an example, consider an investment of ₹5,000 every month in a mutual fund:
| Month | NAV (₹) | Units Purchased |
| 1 | 50 | 100.00 |
| 2 | 47 | 106.38 |
| 3 | 45 | 111.11 |
| 4 | 48 | 104.17 |
| 5 | 50 | 100.00 |
| Total | 521.66 | |
In the given scenario an investment of ₹25,000 (₹5,000×5) is made with average cost per unit of ₹47.93 for 521.66 units. As NAV regains its initial value of 50 per unit after 5 months, the value of investment becomes: Value of investment = 521.66 × ₹50 = ₹26,083
Thus, there is a gain of ₹1,083 over an investment of ₹25,000 even though the NAVs ended at the same level as they began. The gains arise on account of Rupee Cost Averaging, as the investor accumulates a greater number of units when NAVs were lower (at ₹47 and ₹45), that pulled down the average cost per unit.
Key insight – No need to time the market
Investments done with principle of RCA highlights that there is no need to “time” the market to earn profits. Consistent and patience allow market dips to work in in favour automatically.
Smart RCA strategy
RCA wealth-building tool rewards discipline. However, it is even more effective when combined with a Smart strategy that invests extra during dips as witnessed in the months of February and March this year.
The traditional SIPs build discipline; a Smart SIP adds intelligence.
Smart approach can be further improved through use of data analysis and adjust SIP amounts depending on market conditions. This approach does not attempt to time the market. Rather it optimizes the investment allocation within a disciplined framework. By doing so, it enhances the benefits of Rupee Cost Averaging and potentially delivers higher long-term returns. In our earlier example, if the SIP of ₹5,000 continues every month, a Smart SIP might need increase in the contribution to ₹6,000 during market corrections and reduction to ₹4,000 during sharp rallies.
A smart approach can improve returns and make a significant rise in the wealth accumulation over a long period. It helps to stick to a plan, stay invested, and use market volatility to the advantage.
RCA works across all equity investments
The advantage of RCA is that it is not restricted to mutual funds. Whether investments are made in stocks, ETFs, index funds, or sectoral funds, the principle remains the same and can be applied for similar benefits. Over time, RCA (traditional and modern) reduces the average purchase cost and smooth out market volatility, making it a universally applicable strategy for all investments attributed with volatility.
Apply smart RCA approaches in all equity investments.
However, there are many caveats for the approach. To know, please read – https://crorex.in/the-hidden-risks-of-rupee-cost-averaging-in-stocks-why-averaging-down-can-destroy-your-wealth/
Endnote
Whether markets are peaking, lowering, or moving sideways, the key to success lies in consistent investments. Bearish markets or dips are to seen as opportunities to let investments grow the smarter way. Consistency helps investors to focus on long-term goals undeterred by daily fluctuations. The approach to invest systematically with smart changes can lead investors to achieve enhanced wealth creation over time.
However, there are many caveats for the approach. To know
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