Advantage of Ringgit Cost Averaging

Say investor A

Invest in Fund A with the amount of RM 10,000, NAV RM0.2800, service charge is 5.5% (cash investment) or 3% (epf investment).
Amount goes into investment; 100/105.5 X RM 10,000. = RM 9478.67

Unit acquire; RM 9478.67 / 0.2800 = 33852.4 units.
Cost per unit; RM 10,000 / 33852.4 units = RM 0.2954

In the event of the market downturn; say NAV of Fund A is RM 0.1800.

Option 1,
(Without Averaging Down the Cost.)

Investor A has to wait for the NAV of Fund A to go up from RM 0.1800 back to RM 0.2954 to reach the break event point.

Option 2,
(Applying the Averaging Down Cost Approach)
Say investor B (invest same time as investor A)

Decided another cash investment of RM 10,000, at NAV RM 0.1800,
Amount goes into investment; 100/105.5 X RM 10,000 = RM 9478.67

Unit acquire; RM 9478.67 / 0.1800 = 52659.3 units.
Cost per unit; RM 10.000 / 52659.3units = RM 0.1899

Therefore, total amount invested; RM 20,000
Total units acquire; 33852.4 + 52659.3 = 86511.7 units.
Average cost per unit; RM 20,000 / 86511.7 units = RM 0.2312.


In the event the NAV of Fund A going up from RM 0.1800 to RM 0.2954,

1) Value of the investment of Investor A

33,852.4 units X RM 0.2954 = RM 10,000.00
Investor A only manage to get back his /her investment amount (provided if there is no dividend @ unit increase on the investment)

2) Value of the investment of Investor B

86,511.7 X RM 0.2954 = RM 25,555.56
Profit; RM 25,555.56 – RM 20,000 = RM 5,555.56
Therefore : % Net Profit = RM 5,555.56 / RM 20,000 = 27.78%. (the calculations exclude any dividend payment, if any)


Conclusion

By applying the Dollar Cost Averaging concept, the investor will acquire more units from the investment made during the market downturn, thus lower his cost per unit & enable him to earn more profits when the NAV of the fund going up.