Definition of Terms
Term
COST AVERAGING
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This is a style of investing in which money is invested at regular intervals instead of a one time lump-sum investment. A fixed amount is invested periodically, say on the 5th of every month, irrespective of the price of the shares / units. When the price of the shares / units is low, it would result in buying of more shares / units, and when the price of the shares / units is high, it would result in buying of less shares / units.
This means that the cost of acquisition of shares is averaged out over time. This method also takes away the risky element of timing the market, as investments are made irrespective of the level of the share / unit price.
The method of cost averaging can be applied quite easily using the SIP plans of mutual funds.
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