Advantage. Analysis of the last ten years suggests that VIP generates higher returns compared with SIP as the cost of acquisition is lower with the former method.

Disadvantage. A major disadvantage is the variable installment. Instalments can vary from nil to the upper limit set by the investor. When markets are up and the portfolio size is greater than the target portfolio, an investor will not have to invest anything. On the other hand, if the markets are down and hence the value of the target portfolio, you will have to dish out extra cash to match the target rate of return.

Besides, if the markets move in one direction, whether up or down for a long period, the return generated by VIP can be inferior to SIP.

Benchmark’s scheme. VIP is available only with S&P CNX 500 Fund. The fund allows a minimum starting investment of Rs 2,000 and has set a default target return of 15 per cent. The amount invested will be used to calculate the target portfolio amount. You will also have to suggest an upper limit up to which fund manager can withdraw money. The fund doesn’t charge any entry load. However, exit before a year attracts a penalty of 1.50 per cent of the fund value. There is no exit load after three years.

What should you do

Investors should certainly adopt this plan, though its availability is at present an issue. “I would recommend this plan. Since the fund gives weighted average return, it scores over a normal SIP. If you are not working on a tight budget and can afford to pay variable installments, go for it,” says Surya Bhatia, a Delhi-based financial planner. “The fund might give less returns in a unidirectional market. However, markets are unlikely to behave this way in the long term,” he adds.

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