Long-term investment in equities certainly yields good returns. However, the journey can be bumpy with bulls and bears making their appearances intermittently. Market pundits, therefore, recommend regular and staggered investment. So far a systematic investment plan (SIP), which gave investors the benefit of rupee cost averaging, was considered by far the best way for making such staggered investments. However, an even better approach exists called value averaging investment plan (VIP). This will help you augment your returns by a few percentage points (compared to an SIP plan). While as an investment technique VIP has been around for some time, Benchmark Mutual Fund has become the first company in India to offer this plan with its index fund —S&P CNX 500 Fund.

How is VIP different from SIP?

SIP. In a systematic investment plan, you invest a fixed amount every month. This amount divided by the net asset value (NAV) of the fund determines how many units you get each month. When the markets rise, the NAV rises and you get fewer units, and vice versa. In this way, the investor averages out the purchase price of units. This concept is known as rupee cost averaging.

VIP: Value investment averaging plan too is a regular investment plan, the only difference from an SIP being that here the amount of investment made varies from month to month. In a VIP, a target rate of return is fixed. The monthly investment that you make is calculated in such a way that this rate of return is achieved every month. When the market is declining, you will be expected to invest more, and vice versa.

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