Query / Accounting on Average/Rupee Cost Averaging

General
1

I do understand Rupee Cost Averaging. My query is

Example

TCS purchased 100 shares at 4200 = 42000 (cost) leaving aside brokerage tax etc.
Price of TCS goes to 5000 (assumed).
I sell 90 shares at 5,000 = 45,000
What would be my revised cost. Is it 42,000 - 45,000. It is negative 3,000
For the remaining 10 shares what will be the average cost. Should I place it as 1 or -300

So my profit will be what - 10 x 5,000 = 50000 + 3000 = 53,000.

Confused.

I can do whatever in my excel. How does this really reflect in Icici Direct profit and loss when I recover the full cost after selling.

How do you guys arrive at rupee cost averaging?

PS: I even deduct dividends received from my cost to arrive at a reduced average cost. I then input the same in money control portfolio - Based on my calculation of average cost, my networth is 200 (assumed). Something made me check the actual portfolio in icici direct and it is only 175. What is shown in Icici Direct is the reality and this is all I have, irrespective of what my excel says although I deduct dividends etc.

2

Rupee cost averaging implies investing a fixed amount consistently over a long period of time in a particular investment which results in the average cost of your investment being lower than the average market price.

The average cost per share is the
(Total amount invested / Total number of shares)

I understand this must have been a clerical error, for 100 shares purchased at â‚ą4,200 per share, the Total cost would be â‚ą4,20,000 (not 42,000)

Anyways, why r u focusing on the sales consideration or the gains.

The average cost per share is simply the number of shares left * purchase price, or alternatively amount remaining invested / total number of shares unsold

Here after selling 90 shares, the average cost per share will still remain as â‚ą4,200 per share

And the total.cost or remaining 10 share will be 10* 4200 = â‚ą42,000.

Your profit in the above scenario will be

90 x (5000-4200) = â‚ą72,000.

Total amount invested/ Total No of shares

Why are u confusing or mixing the cost with profits

Only your investments / purchases will be need to be considered for calculating the average cost.
Your gains or sale consideration will not affect or reduce your cost in any way.

Example:

This is how the average cost calculation works.

Buy 100 shares @ 100 = 10000
Buy 100 shares @ 150 = 15000
Sell 50 shares @ 200 = 10000

Number of shares left
(200 - 50) = 150

Since the FIFO method is followed, the average cost of the remaining 150 shares is calculated as follows

50 shares @ 100 = 5000
100 shares @ 150 = 15000

Average cost per share = (5000+15000) / 150 shares
= â‚ą133.33 per share

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3

Thanks for a detailed reply. I understand now why Icici Direct is showing a different picture than my excel sheet.

I still cannot comprehend the following:-

In the above example - My total cost remaining in this investment is 15,000 and I have 150 shares. So my average is 100. Is this not the way to calculate.

If I did the above two, I will have 200 shares at a cost of 25,000. My average cost is 125. - Is this correct.

If the above is correct why am I not allowed to average when I sell.

Buy 100 shares @ 100 = 10000
Buy 100 shares @ 150 = 15000
Sell 50 shares @ 200 = 10000
Total shares held = 150. Total capital invested = 15,000. My average cost of shares is 100.

Just to extend it further, when I get dividend of 2,000. I deduct 2,000 from my 15,000 so it is 13,000 and my shares held is 150. So average is 86.66

Why on purchases I get to average but when I sell, I cannot do it.

Just to clear few things. My idea or till date what I believed in was - Invest in equity 10,000 hold on to this investment. When value gains to 20,000, sell the amount equal to amount invested ie 10,000 and move it to FD and leave the balance as equity. By doing this I truly do not worry if the market goes up or down or does anything, at the same time, I am invested in equity free of cost.

It is like when I put my money in equity, I take a conscious decision that I need to take back the money invested in 5 year time and back to FDs and leave the profit only in equity.

4

What you are doing is cashflow accounting. I invested 10K, I got back 10K so my cost is covered, now whatever I have left is profit.
As an individual you can do this, but from taxation purpose this is not correct.

In simple term,
every single share you buy at whatever price remains it s cost. It does not changes when you buy more shares.
Every single share at whatever price is sold is the selling price. Same remains constant regardless of more selling.

Your profit is Sell price - cost and taxes are payable on that profit.

Correct for your mental satisfaction. Incorrect for taxation.
When you sell taxation considered is based FIFO concept - First In First Out

So when you sell 50 shares out of 250, you are not selling 50 shares at average cost price of 125
You are selling first 50 shares (of the 100 you bought first) at cost of 100

Incorrect.
you now hold 50 shares with cost of Rs. 100 and another 100 with cost of Rs. 150
As I said previously buying or selling more shares does not change price of previously bought shares.

Incorrect. Dividend cannot be reduced from cost. Even after dividend, you still hold 50 shares with cost of Rs. 100 and another 100 with cost of Rs. 150

Dividend does not change cost of original shares, nor does bonus issue.
Cost will change only if company “splits” the share

No we do not get to average on purchase and hence nor when we sell :slight_smile:

What you have been doing is good for your personal satisfaction, but incorrect from taxation perspective.
Thumb rule - As soon as you buy a single share, its cost is fixed and does not changes (unless company issues Split). As soon as you sell, selling price per share is fixed. Selling works on FIFO, what you bought first, gets sold first.

Hope this helps.

1 Like
5

Thank you for your reply. Truly appreciate. Trying to refix my thoughts after what you and @SG_13 replied.

Again on a lighter note

I got one correct - that too teacher gave me because it is for mental satisfaction. Like teacher give marks for handwriting…

I got all others incorrect…

Basically 0/100.

But there is still some ray of hope in the below.

[quote=“Akash_Shah, post:4, topic:173801”]
What you are doing is cashflow accounting. I invested 10K, I got back 10K so my cost is covered, now whatever I have left is profit.
[/quo

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6

I track my average buy price using a spreadsheet, but for proper accounting, especially when you’ve got loads of SIPs going on, using something like https://acupowererp.com/acumatica/financial-management makes it easier to handle FIFO, LIFO, and weighted average calculations without doing it all manually. It saves time and avoids errors, especially around tax time or if you’re dealing with multiple folios and redemption dates.