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Systematic investing Vs Value averaging:


Syetematic Investment:

Currently this is the most favorable mode of investment.There is no need to time the market.Even if market slides down,investor get advantage of lower unit values for further installments and if market goes upward investor have a option to book profit of paid installments and continue further installments.Data shows that SIP is more useful in falling market.In 2008,when market slides in 2008,lakhs of folios closed as most of investors do not understand the basic concept of Sips.

Limitation of SIPs is that we can get some installments absolutely at higher levels.

Value Averaging:

Value averaging involves addition of capital after a fixed, predefined market levels.

Suppose a investor wants to invest Rs. 5L in mutual Funds.He will invest Rs.1Lac at current market price and add 1lac on each correction of 10% ,,under this concept.

Limitation of concept is that we have assumed that market will slide in future and I will add more on each slide. It requires more market understanding which most of the investors do not have.

So,which mode is correct?

Ideal Investor should use combination of both SIPs as well Value Averaging.

In 2008,when market slides at lower levels,we were advised to our clients value averaging from 10000 sensex level.Most of the clients agreed and get the fruitful results.


Category: Mutual Funds

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Information provided on this blog is for general purpose only & not investment advice.Please take advice of SEBI Registered Investment Advisors before taking any investment decision.
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