Investing Guide #77: What Is Dollar Cost Averaging (DCA) & Why Every SIP Does It

 

You Don’t Need to Time the Market — Just Use This Proven Method to Reduce Risk

Dollar Cost Averaging (DCA) is the hidden engine behind SIP success. It protects beginners from timing mistakes and smooths out market ups and downs.

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🧠 What is DCA?

Investing equal amounts regularly regardless of market condition.

Example:
₹2,000/month into a mutual fund.
When NAV is low, you get more units.
When NAV is high, you get fewer — but value grows.

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📊 DCA vs Lump Sum

Method	Risk	Consistency	Ideal For
DCA (SIP)	Low	High	Salaried beginners
Lump Sum	High	Low	Advanced investors

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💡 Why It Works

• Removes emotion from investing
• No pressure to time market
• Works well for long-term wealth-building

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🧾 Real-World Example

If you invested ₹5,000/month in Nifty 50 index for 5 years, you’d likely beat most FD returns and beat inflation — with less stress.

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✅ Conclusion

Don’t try to time the market. Let time in the market + consistent SIP do the heavy lifting via DCA.

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