Dollar Cost Averaging in US Stocks for Indian investors
Dollar Cost Averaging, or DCA, is an easy way for Indians to invest in US stocks & global ETF’s without worrying too much about whether the market is high or low today or without worrying about the USD-INR exchange rates today and hence investing at a regular frequency so as to average out volatility to derive returns.
What is Dollar Cost Averaging for Indians investing in US & global markets
Instead of investing an amount in one go, an investor derives the benefit of “Dollar Cost Averaging” by investing a fixed amount on a regular frequency without worrying about timing the market or timing the exchange rate. For example : Rs.5000 and its equivalent in US dollar for investing in say a Google or Nvidia or a South Korean ETF every week for the next 156 weeks (or next 3 years).
For Indian investors, “Dollar Cost Averaging” in US stocks is even more useful because there are two elements of investing:
- The price of the US stock or Global ETF in dollars.
- The USD-INR exchange rate.
Therefore, when Indians invest at regular intervals in US stocks or global ETF’s by converting their Rupees to Dollar, they are not only averaging the stock price. They are also averaging their rupee-to-dollar conversion over time.
Think of it like buying mangoes every week during the season. Some weeks mangoes are expensive, so you get fewer mangoes. Some weeks prices fall, so you get more mangoes for the same money. And some weeks USD is cheaper versus INR so you get more USD (more mangoes) while on other weeks USD is more expensive then you get lesser mangoes. However, over time, your average buying price becomes smoother. That is the basic idea behind Dollar Cost Averaging.
In simple words, with dollar cost averaging you do not need to worry about market timing and hence this reduces the mental stress of trying to decide. “Should I invest today?” ; “What if the market falls tomorrow?” ; “What if the dollar becomes more expensive?” ; “What if I miss the right time?”
Two levels of Dollar Cost Averaging explained
When an Indian investor uses Dollar Cost Averaging for US stocks & global ETFs, there are two levels of averaging happening at the same time. The first averaging happens in the US stock or ETF price. The second averaging happens in the USD-INR exchange rate.
This is important because Indian investors do not invest in US stocks directly in rupees. First, rupees are converted into dollars. Then those dollars are used to buy the US stock or Global ETFs. Post the sale, the returns are converted back to INR.
Dollar Cost Averaging in the US Stock and global ETF Price
Dollar Cost Averaging first helps you average your buying price in the underlying US stock or ETF.
Let us understand this with a simple example.
Suppose Rohan wants to invest in a US ETF. Instead of investing $1,200 in one go, he invests $100 every month for 12 months.
The ETF price keeps changing every month.
| Month | Amount Invested | ETF Price | Units Bought |
| January | $100 | $100 | 1.00 |
| February | $100 | $80 | 1.25 |
| March | $100 | $75 | 1.33 |
| April | $100 | $90 | 1.11 |
| May | $100 | $120 | 0.83 |
| June | $100 | $110 | 0.91 |
| July | $100 | $95 | 1.05 |
| August | $100 | $85 | 1.18 |
| September | $100 | $100 | 1.00 |
| October | $100 | $105 | 0.95 |
| November | $100 | $115 | 0.87 |
| December | $100 | $125 | 0.80 |
Total amount invested: $1,200
Total units bought: 12.28 units
Average cost per unit: $97.72
Even though the ETF price moved between $75 and $125, Rohan’s average buying price became $97.72.
This happened because when the ETF price was low, his $100 bought more units. When the ETF price was high, his $100 bought fewer units.
Rupee-Dollar Averaging Over a Long Period of Time
For Indian investors, there is another important benefit.
When you invest in US stocks from India, your rupees are converted into US dollars. The USD-INR rate keeps changing.
Sometimes $1 may cost ₹82. Sometimes it may cost ₹84. Sometimes it may cost ₹87.
If you convert a large amount on one single day, your entire investment gets converted at that day’s dollar rate.
But if you invest regularly over many months or years, your conversion happens at different USD-INR rates. This creates an average dollar buying rate.
Let us understand this with an example.
Suppose Meera invests ₹10,000 every month in US stocks for 12 months.
| Month | INR Invested | USD-INR Rate | Approx. Dollars Received |
| January | ₹10,000 | ₹82/$ | $121.95 |
| February | ₹10,000 | ₹83/$ | $120.48 |
| March | ₹10,000 | ₹84/$ | $119.05 |
| April | ₹10,000 | ₹82.50/$ | $121.21 |
| May | ₹10,000 | ₹85/$ | $117.65 |
| June | ₹10,000 | ₹86/$ | $116.28 |
| July | ₹10,000 | ₹84.50/$ | $118.34 |
| August | ₹10,000 | ₹83.50/$ | $119.76 |
| September | ₹10,000 | ₹87/$ | $114.94 |
| October | ₹10,000 | ₹86.50/$ | $115.61 |
| November | ₹10,000 | ₹85.50/$ | $116.96 |
| December | ₹10,000 | ₹84/$ | $119.05 |
Total rupees invested: ₹1,20,000
Total dollars received: $1,421.28
Average effective USD-INR rate: ₹84.43 per dollar
So Meera did not convert all her money at ₹87/$ or ₹82/$. Her average conversion rate became ₹84.43/$.
This is useful because nobody knows the perfect day to convert rupees into dollars.
A Combined Example of Dollar Cost Averaging in US Stocks + Rupee-Dollar currency exchange Averaging
Let us combine both the above examples. Suppose an Indian investor puts ₹10,000 every month into a US ETF or a US stock.
Every month, two things change:
The USD-INR exchange rate.
The US ETF price.
| Month | INR Invested | USD-INR Rate | Dollars Received | ETF Price | Units Bought |
| January | ₹10,000 | ₹82/$ | $121.95 | $100 | 1.22 |
| February | ₹10,000 | ₹83/$ | $120.48 | $80 | 1.51 |
| March | ₹10,000 | ₹84/$ | $119.05 | $75 | 1.59 |
| April | ₹10,000 | ₹82.50/$ | $121.21 | $90 | 1.35 |
| May | ₹10,000 | ₹85/$ | $117.65 | $120 | 0.98 |
| June | ₹10,000 | ₹86/$ | $116.28 | $110 | 1.06 |
| July | ₹10,000 | ₹84.50/$ | $118.34 | $95 | 1.25 |
| August | ₹10,000 | ₹83.50/$ | $119.76 | $85 | 1.41 |
| September | ₹10,000 | ₹87/$ | $114.94 | $100 | 1.15 |
| October | ₹10,000 | ₹86.50/$ | $115.61 | $105 | 1.10 |
| November | ₹10,000 | ₹85.50/$ | $116.96 | $115 | 1.02 |
| December | ₹10,000 | ₹84/$ | $119.05 | $125 | 0.95 |
- Total invested: ₹1,20,000
- Total dollars invested: $1,421.28
- Total ETF units bought: 14.59 units
- Average dollar conversion rate: ₹84.43/$
- Average ETF buying price: $97.43 per unit
The investor did not need to time the market.
Which month the US ETF or the US stocks would be cheapest or which day can I buy the dip.
Which month the rupee would be strongest or the USD will be cheapest. .
By investing every month, the investor automatically averaged both the US stock price and the USD-INR conversion rate.
How is Dollar Cost Averaging different from SIP?
Dollar Cost Averaging is the concept of averaging your investments, while SIP (Systematic Investment Plan) is a tool to derive the benefit of Dollar Cost Averaging.
SIP is an automated tool that enables an investor to set up a fixed investment at a regular frequency such as weekly or monthly. SIP in Indian mutual funds is very popular and has become a phenomenon. Indian investors can now also set up SIP in US stocks and global markets.
Therefore SIP as a tool enables you to derive the benefit of dollar cost averaging by automating your investments in US stocks and also automating your Rupees to USD conversions at regular frequency. Dollar Cost Averaging turns investing into a habit.
Just like a monthly SIP, rent payment or school fee, the investment becomes part of your routine. When markets fall, many investors become scared. But Dollar Cost Averaging can make market falls less scary because your regular investment buys more units at lower prices.