Equity investing: The workings of average investing

Equity investing: The workings of average investing

The limited investment plan is similar to its most popular cousin, the cost of dollars is relatively low, commonly known as formal investment schemes. The concept of a value-added investment program was first introduced in 1988 by former Harvard professor, Edelson. It follows the general philosophy of investing in low cost and high selling.

What is VIP (Value averaging investment plan)?

Under this investment philosophy, the investor determines his or her goal - the final amount he or she wants to achieve during the holding period and invests accordingly with market movements. Accordingly, an investment model is developed that directs the investor to determine the value of the portfolio at any given time.

Investors ensure that the real value of the portfolio is as close as possible to the price path. If the value of the portfolio is behind the value chain, then investors need to invest more. This is a very driven formula approach and appropriately, the investor buys more at lower prices and may not buy at all if prices are high. Therefore, this method is very different from the popular and widely used SIPs.

SIP vs VIP

The SIP complies with the cost of the loop and therefore the investor invests previously specified monthly / quarterly regardless of market movements. Therefore, if the market goes down, the investor will buy more units but may not invest more.

Let's understand SIP and VIP machines by considering an investment of Rs 10,000 per month for both programs at an expected return rate of 1% per month. Therefore, by the time the second installment is paid, the investment must grow to Rs 10,100. However, due to rising and falling markets the actual value is Rs 9,500. The SIP investor will continue with an investment of Rs 10,000, the VIP investor will compensate for the shortfall of Rs 600 (Rs 10,100 minus Rs 9,500) and invest Rs 10,600. In the third month, the first two installments are expected to reach Rs 20,301.

Suppose the market is up 4% in the second month and the investment is actually Rs 20,904. As the current price is higher than the target, the monthly investment will be reduced by Rs 603 (eg Rs 20,904 - Rs 20,301) and the monthly VIP will be Rs 9,397. For VIPs, this process is followed every month until the day of the goal. However, SIP will continue to invest Rs 10,000 per month regardless of the current market value of the portfolio.

VIP benefits

It instructs investors to start with keeping in mind and allows investors to sell if market conditions allow. Under this heading, you may be able to adjust the last goal if necessary. In addition, for items such as market returns, inflation may be included in the valuation process.

With SIP, the value of the investment is adjusted every month but the value of the portfolio is higher than the investment amount. With VIP, the portfolio value is fixed. Investment costs are usually lower than the portfolio value. In conclusion, both concepts work well in a variety of market conditions and protect investors from the risks associated with market volatility.

VIP benefits

Under the VIP, the investor determines the last corpus he wants to earn at the time of holding and invests according to market movements. Factors such as market returns, inflation can be put in place while making the price method. With VIP, the portfolio value is fixed. Investment costs are usually lower than the portfolio value. The investor buys a lot at low prices and may not buy at all if the prices are high.