“SIP” vis-a-vis “VIP”
Dear Friends, here I am presenting you a new and superb kind of investment technology called VIP, which means “Value averaging Investment Plan”. We have been doing SIPs in the past which definitely is better form of investment method for quite some time now. While SIPs has been explained in details in my earlier blog, here I will dwell upon VIP:
VIP is slightly different form of investment which means we put higher amount of money when the markets are low and lower amount of money when markets are high. It suffices the basic tenet of investment in stock market which is “Buy low and sell high”. It takes care of the upsides and downsides by adjusting the risk percentage itself. VIP gives you better returns in comparison to SIP and the returns can be outnumbered by huge margins in times of higher volatilities which we are witnessing these days.
Methodology of Investment in VIP: Here we take a fixed amount for investment every month akin to SIP but simultaneously we add the loss value to the portfolio in case of falling market which has happened after a fixed time say a month, or decrease the amount of investment in case of rising market. To quote an example we take an investment of Rs.5000 on 1st day of every month, in SIP we will keep on investing this Rs.5000/- every month but in VIP we will increase the investment by calculating the loss that has occurred due to falling market , lets take the value of our loss in next month is Rs.1500/-then our investment will be Rs. 6500/- (ie 5000 actual+1500 loss figure), similarly if the market goes up following month and if our investment becomes Rs. 6500/- then we will invest only Rs. 3500/- thereby decreasing our investment.
Here the ideology of value averaging comes into play and your investment gives best returns in comparison to the benchmarks like Nifty or Sensex. You shelve the fear and see how your investment grows over a period of time. I have explained in detail by quoting a example in the following table:
| Investment Analysis on SIP vis-à-vis VIP | ||||||
| Day | NAV | SIP Amount | SIP Units | Amout diff for VIP | VIP amount | VIP Units |
| 01-Jan | 15 | 5000 | 333.33 | 0.00 | 5000 | 333.33 |
| 01-Feb | 12 | 5000 | 416.67 | -1000.00 | 6000.00 | 500.00 |
| 01-Mar | 10 | 5000 | 500.00 | -1666.67 | 6666.67 | 666.67 |
| 01-Apr | 9 | 5000 | 555.56 | -2000.00 | 7000.00 | 777.78 |
| 01-May | 7 | 5000 | 714.29 | -2666.67 | 7666.67 | 1,095.24 |
| 01-Jun | 9 | 5000 | 555.56 | -2000.00 | 7000.00 | 777.78 |
| 01-Jul | 11 | 5000 | 454.55 | -1333.33 | 6333.33 | 575.76 |
| 01-Aug | 12 | 5000 | 416.67 | -1000.00 | 6000.00 | 500.00 |
| 01-Sep | 15 | 5000 | 333.33 | 0.00 | 5000.00 | 333.33 |
| 01-Oct | 17 | 5000 | 294.12 | 666.67 | 4333.33 | 254.90 |
| 01-Nov | 19 | 5000 | 263.16 | 1333.33 | 3666.67 | 192.98 |
| 01-Dec | 22 | 5000 | 227.27 | 2333.33 | 2666.67 | 121.21 |
| Total | | 60000 | 5064.49 | | 67333.3333 | 6,128.98 |
| Avg Cost | | | 11.85 | | | 10.99 |
| CMV | | | 111418.79 | | | 1,34,837.58 |
| | | |||||
| % Return | | | 185.70 | | | 200.25 |
Here you can yourself see the difference in returns in both the methods. The principle of VIP is far superior than the principle of SIP. So friends don’t loose time on inaction and call your Investment Advisor to make use of this Investment Technology to your advantage.
Efforts to continue to bring new ideas and methods for your advantage.............
Thanks
Nitin Kumar
Ethical Investment Solutions Pvt. Ltd.
