Several independent studies have shown that over multi-year periods, value averaging investment plan (VIP) can produce slightly superior returns to rupee cost averaging i.e. systematic investment plan (SIP), although both will closely resemble market returns over the same period.
What Does Value Averaging Mean?
An investing strategy that works like rupee cost averaging in terms of steady monthly contributions, but differs in its approach to the amount of each monthly contribution. In value averaging, the investor sets a target growth rate or amount on his or her asset base or portfolio each month, and then adjusts the next month\’s contribution according to the relative gain or shortfall made on the original asset base.
The main goal of value averaging is to acquire more units when prices are falling and fewer units when prices are rising. This happens in rupee cost averaging as well, but the effect is less pronounced.
Value Investment Planning (VIP) an Illustration
| Month | NAV | SIP Amount Rs. | SIP Units Bought | VIP Amount Rs. | VIP Units Bought |
| 1 | 10 | 2000 | 200 | 2000.00 | 200 |
| 2 | 11 | 2000 | 182 | 1825.00 | 166 |
| 3 | 12 | 2000 | 167 | 1684.40 | 140 |
| 4 | 13 | 2000 | 154 | 1569.67 | 121 |
| 5 | 11 | 2000 | 182 | 3355.93 | 305 |
| 6 | 10 | 2000 | 200 | 3060.27 | 306 |
| 7 | 9 | 2000 | 222 | 3392.90 | 377 |
| 8 | 8 | 2000 | 250 | 3796.82 | 475 |
| 9 | 9 | 2000 | 222 | 119.25 | 13 |
| 10 | 8 | 2000 | 250 | 4339.56 | 542 |
| 11 | 9 | 2000 | 222 | 0.00 | 0 |
| 12 | 10 | 2000 | 200 | 0.00 | 0 |
| Total Amount Invested (Rs.) Total Units Bought | 24000 | 2451 | 25144.00 | 2645 | |
| Average Cost Per Unit (Rs.) | 9.79 | 9.5 | |||
| Market value (Rs.) | 24508 | 26454 | |||
| CAGR (%) Compound Annualized Gross Return | 4.95% | 10.60% |
Note: For SIP a fixed amount of Rs.1000/- per month is considered for investment & returns is 15% p.a. Compounded monthly. The illustration above is merely indicative in nature and should not be construed as investment advice. It does not in any manner imply or suggest performance of any Scheme.