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|
|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|
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