Investing can seem tricky, right? There’s all this talk about when to invest, how much to invest, and people telling you that it’s impossible to invest more when prices are low and invest less when prices are high. They tell you this might be true for equities, but not for mutual funds. Well, I’m here to bust that myth and introduce you to an exciting strategy called VIP (Value Investment Plan)!
Let’s cut to the chase. VIP is a versatile approach to investing in, mutual funds, and other equity markets. It’s a newer method that effectively lowers the cost of unit purchases better than the typical Systematic Investment Plan (SIP). It has the fantastic feature of flexibility – the amount you invest each month isn’t set in stone but varies within an established range.
Here’s how VIP works. It’s like a smart thermostat for your investment plan. It self-adjusts each month depending on how your fund performed in the previous one. Every VIP uses four main values: an initial value, an expected return from the investment, and minimum and maximum values. If your fund outperforms the expected return, the subsequent month sees a lower investment, and vice versa.
Let’s say you want to buy a car that’s valued at Rs 600,000 in 12 months. The simple calculation would be to save Rs 50,000 every month. But with VIP, if your fund value increases to Rs 51,000 after the first month, you just need to add Rs 49,000 the next month. Conversely, if the market drops and your investment value goes down to Rs 98,000, you’ll need to invest Rs 52,000 to reach your goal.
VIP’s strength is its potential for higher returns over time due to the lower cost of market entry. It’s like a personal assistant keeping an eye on the market for you and making necessary adjustments. However, be prepared for variations in your total investment and subsequent returns. Also, remember to maintain a buffer for additional investments on a bearish market day.
VIP might be your best friend if you’re comfortable with investing different amounts each month. If you’re a newbie investor, start with a regular SIP and, when you’re comfortable, gradually introduce VIP into your investment portfolio. You can then compare and pick what works best for you!
VIP also has a cousin – the Value-averaging transfer plan (VTP). The concept is similar to VIP, but the investment method varies. Rather than drawing money from your bank account every month, VTP transfers money from a liquid/debt fund to the equity fund. You can choose to make a lump sum investment into a liquid fund and set up a VTP to the equity fund, or you can start an SIP in a liquid fund and then establish a VTP to the equity fund.
The beauty of VTP is its precision. The value-averaging calculation is done on the exact day of investment, unlike VIP, where it happens ahead of time. If you’re someone who can invest a considerable amount in a liquid fund, or if you can do an SIP of the maximum VIP amount into a liquid fund every month, VTP might be your go-to method.
Once you register for either VIP or VTP and kickstart your schedule, the following monthly process is a breeze. You’ll receive an email notifying you about the upcoming debit amount for that month. All you need to do is ensure that you have sufficient funds in your account.
Investing, after all, isn’t as complicated as it might seem. It’s about finding the right strategy and having a game plan. With VIP and VTP, you’re setting yourself up for success. So, gear up, jump on this ride, and watch your financial dreams come true!
Ravi T Sharma is a Resourceful Advisory Veteran & Inspiration Generational Wealth Coach and founder of Power Money Hub. As a wealth coach, he offers personalized solutions, debunking the myth that one financial strategy fits all. Ravi’s Power Money Hub, a dual-edged sword with its Community and Consultancy, aims to guide 10 million people out of financial straits by 2025.
Ravi’s narrative resonates with the financially distressed, offering them a way out through education and action. It’s not just about money management, but about building a life of financial freedom and independence. Remember, financial freedom is just a call away. Reach out, take charge, and let Ravi guide you on your journey. In his words, “Quitters ask WHY, Winners say TRY”.
Ravi T Sharma’s story is both a testament and a rally to anyone on the brink of a financial abyss. With his own early life marred by mismanaged cash flow, he turned adversity into a life-altering opportunity. In his journey from an IT professional earning 4 lacs per annum to a financially independent individual amassing 21 lacs per annum, he found his passion for finance and discovered the three golden rules to wealth: ‘Learn to Earn’, ‘Spend Less, Earn More’, and ‘Regulate & Review Your Finances’.
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