Value SIP or Ordinary SIP Make Your Choice

0 views

Skip to first unread message

Wealthcare Sales

unread,

Jun 11, 2016, 2:39:23 AM6/11/16

to wealt...@googlegroups.com

View Email In Browser >

Still Doing SIP

Add more Value to your Investments Opt out for

Value Averaging Investment Plan (VIP)

Sip is well known for rupee cost averaging wherein you invest a fixed amount of money every month. It works more efficiently in volatile markets as you get more numbers of unit’s when the market in on downside and vice versa.

Value averaging investment plan (VIP) is a dynamic concept that helps you elevate the advantage of averaging.VIP generates 1.5% to 2% additional CAGR over a five-year time period.

Drop image here

How does it work?

We can better understand how the two plans work by assuming a monthly investment of Rs 10,000 in a VIP and an SIP. To keep it simple, we assume that the rate of return expected is 1% per month (CAGR of 12.68%). In the first month, the investor puts Rs 10,000 in the VIP and SIP. Since the assumed rate of growth is 1% per month, the invested value should grow to Rs 10,100 by the time the second installment is due.

However, this rarely happens and depending on the market situations, the actual value will be either higher or lower than the expected value. Now assume that instead of going up by 1% as expected, the NAV has tanked by 5%, so the current value becomes Rs 9,500. While the SIP investor will continue with the Rs 10,000 investment, the VIP investor will compensate for the deficit of Rs 600 (Rs 10,100 - Rs 9,500) and make an investment of Rs 10,600.

At a growth rate of 1% per month, the first two installments should have grown to Rs 20,301 by the time of third installment. Now assume that the market has jumped 4% during the second month and the invested value has reached Rs 20,904. Since the current value is higher than the targeted value, investment for the month will be reduced by Rs 603 (i.e. Rs 20,904 - Rs 20,301) and the VIP for the month will be Rs 9,397. In VIP, this process is followed month after month till you reach the goal date.

For achieving a goal VIP works best as compared to SIP as it is reviewed every month.