Rupee Cost Averaging
Full form: DCA / RCA
InvestmentsRupee Cost Averaging (RCA) -- the Indian term for Dollar Cost Averaging -- is the effect produced by SIP where you automatically buy more mutual fund units when prices are low and fewer when prices are high. This reduces the average cost per unit over time, a key advantage of SIP over lumpsum.
In detail
How RCA works in a SIP:nMonth 1: NAV Rs 100, invest Rs 10K = 100 unitsnMonth 2: NAV Rs 80 (market fell), invest Rs 10K = 125 unitsnMonth 3: NAV Rs 90, invest Rs 10K = 111 unitsnMonth 4: NAV Rs 110, invest Rs 10K = 91 unitsnTotal invested: Rs 40K. Units: 427. Average cost: Rs 93.7. Current NAV Rs 110. Gain: 17.4%.nnIf lumpsum Rs 40K at Rs 100: 400 units at current Rs 110 = 10% gain.nnRCA benefited because buying was higher when price was lower. This is the mechanical advantage of SIP over lumpsum timing.
Formula
Real-life example
During COVID crash (March 2020): Nifty fell 38%. An SIP investor's April 2020 installment bought units at 38% off peak. Those cheap units, held until 2024, generated 3x returns vs March 2020 purchase price. The investor did not "time the market" -- the SIP mechanism automatically bought heavily at the bottom. This is why SIP investors are told: do not pause SIP in market falls -- that is exactly when RCA most benefits you.