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Understanding Cost-Averaging

It is tempting to invest a huge sum when the markets are soaring. At the same time, predicting the peaks and troughs of the market is difficult even for experienced managers. Instead of adopting a wait-and-see strategy when markets are falling, investors could choose for cost-averaging: investing a specific sum at regular intervals regardless of NAV price.

Say for example, you choose Panin Dana Prima, one of our equity funds, and plan to invest IDR 5 million per month. The table below illustrates that you will end up buying more units when the NAV is low – and fewer when price rises.

Purchase Date Investment (IDR) NAV # of Units purchased
Febuary 1 5 million 2,500 2,000
March 1 5 million 2,750 1,818.18
April 1 5 million 3,100 1,612.90
May 1 5 million 3,075 1,626.02
Total: 20 Million Average NAV: 2,856.25 Total: 7,057.10
* For illustrative purposes only. Not intended to represent or predict the performance of Panin Dana Prima .

Cost-averaging does not guarantee profit or eliminate risk, but it could lower your average cost per share over time.

Investing on a time schedule lets investor take advantage of market corrections without worrying about when they will occur. Before adopting this strategy, investors should consider the ability to commit to a specific time horizon or changing market conditions.

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LQ-45 0.03%
ISSI 0.54%
Latest Index: Jan 17 2018
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