SIP or VIP?

Every one of you must be aware of the concept of SIP which is called as ‘Systematic Investment Plan’. Under this you will keep on investing a fixed amount on a particular date of every month into the Mutual Fund plan of your choice. This will definitely give you advantage of rupee cost averaging. As you are making purchases at regular interval at varying prices, it will give you better returns in the long term.

Irrespective of the market conditions, the same amount will be deducted from your account periodically and will be invested into the market. But have you ever thought that your returns would be maximized if you can invest more money when market is down and less money when market is up. Every person wants this kind of control over their portfolio, but in practice this is not possible.

What if I say that you can have this control over your investment while doing SIP only? Yes, you read it correct. Here comes the term called VIP which stands for ‘Value Averaging Investment Plan’. This approach goes one step forward to SIP.

So what exactly happens in this approach? Here is the brief description of the same:

Some Mutual funds allow you to start a monthly SIP in the debt schemes of your choice. So let’s say you have started a SIP of 1000 Rs. in a particular debt scheme. Now the fund house calculate the market condition based on all the valuation tools available in the market and classify the market into 3 broad categories:

1.  High – Market is at its peak.
2.  Low – Market is at its low.
3.  Medium – Market is somewhere between High and low.

After deciding the market condition, they will transfer a certain amount from that debt fund into one of the equity fund of your choice on 10^th of every month. Now the question which might arise in your mind is- what is that specific amount?

That amount is calculated as follows, for 1000 Rs. SIP:

• Rs. 1500, when market is Low
• Rs. 1000, when market is Medium
• Rs. 500, When market is High

This will help you maximize your returns further. As it will take in account the rupee cost averaging effect as well as it will help you to time the market that too without putting any stress on your mind.

Thus, I would personally recommend you to have at least one VIP plan, which really helps you to generate wealth in the long term.

If you need any help regarding the same, please do not hesitate to bother me. I will put in my best efforts to explain you the things further in detail.