Why you must buy shares gradually

In 4 rules to be a smart investor, we explained how you could start investing in shares and why you must invest gradually. Here, we give you an example.

Let's say you have been buying shares of Arvind Mills since January 2005. Every month, you keep aside Rs 1,000 to buy these shares. You, however, don't know many shares you can get with this amount.

The share price given below is randomly picked from between the day's high and low.

Over these 17 months, you would have invested Rs 15,347 in Arvind Mills and bought 141 shares. On an average, each share would have cost you Rs 108.84 (Rs 15,347 / 141).

The longer you do this, the more it averages out and the more you gain because you end up buying fewer shares when the price is high and more shares when the prices drops. 

Do note, this example has not taken into account stock splits (one share is split into two or more); bonus issues (additional free shares); Securities Transaction Tax; or brokerage. It is just an indicator of how the cost averages over time.