Last Updated on April 8, 2026 by teamtfl
“If the rain is good, a farmer does not decrease the distance between the two saplings that he sows in order to get more yield.”
Markets were volatile. A few mutual fund companies had started recommending “value averaging” as a smarter alternative to SIP. Clients were calling, asking whether they should switch. One of them put it bluntly: “My SIP just keeps buying even when markets are falling. Is there a smarter way?”
It is a reasonable question. The answer is more nuanced than most people expect.
⚡ Quick Answer
SIP (Rupee Cost Averaging) invests a fixed amount regularly regardless of market levels. VCA (Value Cost Averaging) adjusts the investment amount to maintain a target portfolio growth rate – buying more when markets fall, less or even selling when markets rise. For most Indian investors, SIP wins on simplicity, discipline, and long-term outcomes. VCA has theoretical advantages but requires active management and access to surplus cash when markets fall hardest.
What is Rupee Cost Averaging (SIP)?
Rupee Cost Averaging is the mechanism behind every SIP. You invest a fixed amount – say Rs 10,000 – every month, regardless of the market level. When the NAV is low, your Rs 10,000 buys more units. When the NAV is high, it buys fewer units. Over time, your average cost per unit is lower than the average NAV over the same period.
This is not magic. It is mathematics. And it is most powerful in two conditions: falling markets (you accumulate more units cheaply) and volatile markets (the averaging smooths out your cost).
The key factor is commitment. SIP works because it removes the timing decision entirely. You do not decide when to invest. You have already decided. The standing instruction does it for you while you sleep.
SIP in a Rising Market
| Month | Amount | NAV | Units Bought |
|---|---|---|---|
| Jan | Rs 1,000 | 20 | 50 |
| Feb | Rs 1,000 | 25 | 40 |
| Mar | Rs 1,000 | 30 | 33.33 |
| Total | Rs 3,000 | Avg: Rs 24.54 | 123.33 |
A lumpsum investor who put Rs 3,000 in January at NAV 20 would own 150 units. The SIP investor owns only 123 units – SIP is slightly disadvantaged in a straight bull market. But nobody gets a straight bull market. Real markets oscillate.
What is Value Cost Averaging (VCA)?
Value Cost Averaging was developed by Michael Edelson of Harvard Business School. The idea: instead of investing a fixed amount, you invest whatever amount is needed to keep your portfolio growing at a predetermined target rate.
If your target is portfolio growth of Rs 1,000 per month and your portfolio grew by Rs 1,200 this month (markets went up), you invest only Rs 800. If your portfolio fell by Rs 200 (markets dropped), you invest Rs 1,200 to get back on track. In extreme cases, you might sell units if the portfolio grows far ahead of target.
The result: you systematically buy more when markets are cheap and less when they are expensive. Theoretically, this improves your average cost per unit compared to simple SIP.
SIP vs VCA – The Honest Comparison
| Factor | SIP | VCA |
|---|---|---|
| Investment amount | Fixed every period | Variable – depends on portfolio performance |
| Cash requirement | Predictable | Unpredictable – higher when markets fall hardest |
| Discipline required | Low – fully automated | High – requires active monitoring and action |
| Theoretical return advantage | Lower in volatile markets | Higher – if executed perfectly |
| Suitable for long horizons (15-20 years) | Yes | No – difficult to maintain discipline over decades |
| Behavioural risk | Low | High – most investors cannot execute at crash lows |
Your SIP strategy is a foundation. Your retirement corpus is the building.
At RetireWise, we integrate your investment strategy into a complete retirement blueprint. SEBI Registered. Fee-only.
The Real Problem With Both Strategies – What Neither Camp Tells You
The debate between SIP and VCA assumes you will actually keep investing when markets are crashing. This assumption is almost always wrong.
Consider what happened in March 2020. Sensex fell 38% in 40 days. This was the single best time to be investing more – especially in a VCA framework. In reality, millions of SIP investors cancelled their SIPs. Millions more stopped logging in to their mutual fund accounts. Almost nobody increased their investments voluntarily.
VCA requires you to invest your largest amounts precisely when fear is highest – when markets have fallen 30%, news channels are predicting economic collapse, and your portfolio is deeply in the red. The strategy is mathematically sound. Psychologically, it is nearly impossible for most investors to execute consistently.
SIP wins not because it is mathematically superior. It wins because it is psychologically executable. You set it up once and it runs on autopilot through every market cycle – good and bad – without requiring you to make a decision at the moment when human judgment is most unreliable.
THE REAL ADVANTAGE OF SIP OVER 20 YEARS
Not the average cost per unit.
Not the theoretical return advantage.
The fact that it kept running in 2008, 2020, and every crash in between.
The strategy that gets executed beats the strategy that does not – every single time.
“It’s not a Numbers Game… It’s a Mind Game. In longer tenure of 15-20 years, the difference between exact timing and awkward timing averages out and comes very close to SIP. So why take the mental stress?”
– Hemant Beniwal, CFP, CTEP | Founder, RetireWise
Read next: SWP Is Not a Retirement Strategy – It’s Just a Tool. Here’s What Actually Works.
You have been building a corpus. Now you need a plan to live from it.
The RetireWise Retirement Blueprint covers both accumulation and withdrawal – so your corpus lasts as long as you do. SEBI Registered. Fee-only.
If the rain is good, a farmer does not decrease the distance between saplings to get more yield. He trusts the process. The SIP investor who stays the course through two decades of market cycles – crashes, recoveries, booms – will end up with far more than the VCA investor who abandoned their strategy in the third crash.
Do the right thing and sit tight. Your SIP already knows what to do.
💬 Your Turn
Have you ever paused or cancelled a SIP during a market crash – and later regretted it? Or stayed the course and seen it pay off? Share your experience below. It might help someone else stay invested.
Hello Hemant, I have been following your articles since a month and they are very informative. This article is no different. However, I had a question, what would be the result if one invests in SIP of a fund that works on VIPs?
if you invest in Batter SIP The You Get The Proper And Best to b Best Return as Compare to LIC
Which AMC do VCA.
my name is anand. I am an lic agent. the government provided the new pention system card to me. my permanent registration account number is 500060469838. please tell me how to get my permanent account details. if u have that details please sent to above mentioned mail Id.
Hi Anand,
You can get the details from nsdl-cra.
Hemant,
I have been following all your articles from past few months. They are all informative and keep up your good work. Some how, I missed this article – I have gone through it today.
Writing a detailed and bit long comment as I want to clear my self.
Coming to this article; the example given for SIP Vs VIP:
— SIP numbers given by you are correct.
— VIP, you have not followed same approach it seems.
I.e, means through SIP if we invest Rs:1000/- for month; Through VIP also, our target of portfolio has to be Rs:2000/- for 2 months; Rs:3000/- for 3 months.
I have calculated like that and has understood that VIP is beneficial compared to SIP interms of profit or even in loss also.
I have taken different NAV’s to compare SIP and VIP.
a) Random NAV’s given by you in this post
b) Another set of Random NAV’s
c) Real NAV (Axis Long Term Equity)
I was not able to post those metrics (Excel Sheet or as Images) here. Is there any way to post those pics. Then I can provide here.
Can you please clear me, if I misinterpreted some thing wrong.
Thanks in Advance
@mar.
Amar,
Hemants method of calculating VIP is correct.
Can you please explain what you mean by, “Through VIP also, our target of portfolio has to be Rs:2000/- for 2 months; Rs:3000/- for 3 months.”?
I have done VIP vs SIP analysis over a period of several years using MFs and Sensex. Click on my name to go to my blog.
As noted in my comment above, one ends up investing a lot of money for a little more returns in VIP.
I will be interested in seeing your analysis. If you wish you could send them to me: pattu [AT] iitm.ac.in
Hi Hemant,
This is Sandhya.your all the articals are very good..very well explained…interesting and useful information.
Hi!
I came across this article today and went through some of the past articles. I am now wondering why I didn’t come across this blog earlier.
Thanks. And keep up the good work. This blog has a rich mine of information.
Hi Hemant,
Very good comparision betn. two strategies. HDFC MF is providing VCA ( based on formula ) thr its Swing STP. No need to keep track of market once you start STP.
for many years i didnt invest in shares
they are all too confusing
after reading your blog i am now confident about share market
Hi Hemant,
I feel that Rupee cost averaging is always a better option as it brings in discipline and it does not require the investor to keep on tracking the market. However, Value averaging depends on market volatility and the investor has to keep an eye on the market..
The article is very good…
@ Devadoss Eswar Fundsindia offers a VIP option.
I have made two studies on SIP vs VIP.
one based in mutual funds based on report released by Funds and one based on monthly sensex returns.
In both studies, for a given goal, there is a very good chance that we will end up investing much more than a SIP and still not attain a target.
Most people say VIP gives higher returns than SIP. This comes at a price. The total investment needed is much higher than SIP.
As Hemant points out best to keep it simple, start a SIP and whenever we have some money we buy when the market crashes by say, about 2%
Quite Informative…
I have done some calculations with SIP and Value Averaging with some good funds. I found that if your time horizon is more than 4 to 5 year then Value Averaging will give you less return. While if your time horizon is less then 5 years then it is good. The present situations like 2008-2013 may give you good results in Value Avg. But in situations like 2004-2008 this will give you very bad results in comparison to SIP.
Hi
Excellent — Informative and well written.
Dear Hemant,
Thanks a lot for this very helpful article for MF investors of our country.
I want to know whether VCA is available with our MF schemes .
In any case, SIP , as you have rightly illustrated , is an affordable option for the common man with regular income , to invest for his long time needs in a simple and hassle-free manner . Only that it is still not very popular in rural areas where the investment mentality needs to be created properly and encouraged.
I congratulate TFL teams for this kind of presentations which are easy to follow . Please continue to publish such articles on personal finance regularly !
Devadoss Eswar,
Trivandrum.
Thanks Mr. Devadoss
Hi Hemant,
Another informative article! I think RCA is good for long term investment but VCA will yield good results if someone wants to abruptly exit from MF.
Do you agree?
Hi Ankit,
Its the matter of discipline. Yes VCA may yield good results in some instances but its difficult to time the market and so difficult to implement.