This is a feature of regular, as opposed to lump sum, investing that can smooth out volatility and boost returns depending on what the underlying market does over the investment term.

For example if you invest £1,000 as a lump sum at the start of a five year period when unit prices are £2, you will own 500 units throughout the period. However let’s say that in the interim years unit prices are £1.80, £1.60, £1.80 and £2 and you decide to drip in £1,000 as five lots of £200. You will buy 100 units at £2 each, then £200/£1.80, or 111 units, then £200/£1.60, or 125 units, then £200/£1.80, or 111 units and finally £200/£2, or 100 units. So over five years you have amassed 547 units, or 47 more, thanks to pound cost averaging. However note that if prices rise continuously pound cost averaging will underperform lump sum investing.

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