SIP or VIP?

We all know the answer to the following very simple question buts let's start with the basics anyway, to get a better comparison between an SIP and a VIP:

What is an SIP?

An SIP, or a Systematic Investment Plan, is a mode of investment whereby you, the investor, invest a pre determined amount on a monthly basis, on a pre determined date, into a particular mutual fund scheme. It's the most commonly chosen method of investing by retail investors today.

An SIP has a number of benefits, such as:

• Benefit of Rupee Cost Averaging
  Since you're buying every month, you'll be buying at dips and rises, so you are averaging your cost over the time period.
• Benefit of Power of Compounding
  An SIP of Rs. 5,000 per month, with the help of the power of compounding, can grow to Rs. 13.76 lakhs assuming a growth rate of 15% p.a.
• Helps you avoid panic selling
  SIP investors tend to scare less easily than lump sum investors when the markets fall – as they get the chance to buy low, and later when they want, sell high.

So what is a VIP? A Value averaging Investment Plan (VIP) is an investment strategy that works like an SIP – you invest on a pre determined date, into a fixed mutual fund scheme, achieving the purpose of disciplined investing and following the finance gurus when they say 'Buy Low'. But while in an SIP the amount is fixed and units may change, in a VIP you have a target value of your portfolio, which increases by say Rs. x,000 per month, and you invest the difference between the current value of your portfolio, and the targeted portfolio investment value.

Calculate return on your investment: SIP Calculator