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Value Averaging Investment Plan

SIP in mutual fund is the tool advised by financial planners, because it inculcate investment discipline along with cost averaged returns. VIP is one innovative investment strategy in which one has to invest in regular interval in mutual funds, but the value of investment keep on changing so as to achieve the predetermined target in fixed duration.
For example, In SIP one person invests Rs. 5000 per month for the whole year, making total investment of Rs. 60,000. Value of this investment becomes 66,560 at the end of year. The rate of returns is 20.8 %. In VIP other person wants to invest a money so as to get 60,000 at the end of year. Due to market volatility he may need to invest different amounts in regular interval. He invests Rs. 53,245 till the end of year in twelve installments. Here, the actual rate of return is about 23 %. So, VIP provide better risk adjusted returns compared with SIP. VIP keeps on working with specific financial goal of returns.

Value averaging technique follows Warren Buffet Principle “Being greedy when others are fearful and being fearful when others are greedy”.

SIP Investment VIP Investment
Month NAV Amount Invested Units bought Amount Invested Units bought
1 100 5000 50 5000 50
2 105 5000 47.6 4750 45.2
3 115 5000 53.5 4048 35.2
4 118 5000 42.4 4609 39.1
5 123 5000 40.7 4153 33.8
6 116 5000 43.1 6423 55.4
7 110 5000 45.5 6552 59.6
8 102 5000 49 7545 74
9 118 5000 42.4 -1275 -10.8
10 123 5000 40.7 3093 25.1
11 125 5000 40 4187 33.5
12 127 5000 39.4 4129 32.4
Total Units bought: 524.1 Total Units bought: 472.4
Total amount invested: 60,000 Total amount invested: 53.204.5
Average Cost Per unit: 114.6 Average Cost Per unit: 112.6
Market value of Portfolio: 88,560 Market value of Portfolio: 80,000
Returns: 20.8% Returns: 23%

Links for more inforamation:
1.Benchmarkfunds.com

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