Value Added Monthly Index – Concept, Importance, Calculation, Usage & more

Ideally, the majority of the experts commonly use the Value Added Monthly Index or VAMI to understand the overall performance of the investors.

You can use the index for a plethora of reasons, including offering an understanding of the growth of investment over time.

Additionally, you can also analyze the performance of the fund manager and also compare the several funds and index benchmarks.

Typically, it tracks the monthly performance of the Rs.1 Lakh investment, which is a hypothetical amount. Additionally, it also assumes reinvestment over some years.

It basically takes into account the NET monthly returns.

Know about Value Added Monthly Index or VAMI

Value Added Monthly Index most likely takes into account the investor’s total return and gains over a particular period of time.

The profits are both capital gains and reinvestment of any investments, including dividends and extra income earned via compounding.

The main element of the index is that you can calculate it using NET monthly returns.

In simple terms, it means that all applicable fees, including management, incentive, and brokerage fees. You can calculate these returns after deducting these fees and expenses.

The only reason why the Value-added monthly index is so popular because it is pretty much descriptive.

It will tell you how an investor performs over a period of time, and it is relatively easy to understand.

You can use the index to compare different funds, budget it for capital expenditures, set goals, and offer index benchmarks for a specific period.

Commonly, the index is used for keeping a tab on investment accounts. Here the cash withdrawals and cash deposits are not likely to affect the performance of the trading.

In simple terms, the index offers an estimate of the total profits of the investors. The profits are calculated after deducting the financing cost of the company’s capital.

It also assumes the capital gains and reinvestment of all interest and profit gains.

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How does Value Added Monthly Index Standout?

The only difference between this indicator and other indicators, including earnings per share (EPS) and value-at-risk (VaR), is that it determines profit after deducting expenses from the operating profit.

The expenses included management fees and incentives. Thus, you can understand that when it comes to calculating the value of the shareholder, the gain must account for the Value.

It is commonly known as the performance indicator as the index communicates the overall performance of the investor. Above all, you can easily understand it as it is descriptive in nature.

How to Calculate Value Added Monthly Index or VAMI?

First of all, you need to consider a hypothetical investment amount of $1000. Initially, the time (t) = 0, VAMI = $1,000. The monthly rate of return is:

1 + Current Rate of Return = Current Month VAMI / Previous Month VAMI

1 + RORt = Vt / Vt – 1

But, VAMI0 = $1,000

Some of the basic formulas include:

Previous VAMI= 1,000 * (1 + Net Return of the current month)

Current VAMI = Previous VAMI * (1 + Net Return of the current month), you can denote it as:

VAMIt = VAMIt-1 [Vt / (Vt – 1)], here RORt represents the net amount of all fees

Through compounding, both interests and dividends are reinvested into the Value-added monthly index.

In simple terms, it means that along with quantifying the potential risks of $1000, you can also use the index to compare various assets with various starting dates.

You can say that the model serves as a simple type of backtesting the risk-return investment features. Thus, under the index, $1000 is the Value before tax, and RORt is the condition of all net fees.

You also need to consider the foreign exchange rates for all the securities whose denomination vary from US dollars.

How to use Value-Added Monthly Index for comparisons?

Some of the experts say that the index is one of the most reliable instruments to measure the fund’s performance across the markets.

You can also customize the charts under this index so that it can fit perfectly into the funds of the family. Additionally, it gives a plethora of options to the investors.

Furthermore, the charts can also offer different perspectives on what they can expect in future markets.

You can also use some visual representations of the map to show the performance of the fund’s overtime.

Charts are useful for in-depth analysis. When it comes to comparing the performance of various funds from the same categories, then the index becomes biased.

Furthermore, it takes into account only some factors of capital appreciation and not the dividends which different funds pay.

About the constructions of VAMI Instruments

Almost all investors use a plethora of Value-added index instruments from different market platforms to evaluate investment performance.

Besides showing you the extent of the growth of the investment over a period of time, the Value-added monthly index also takes into account some outputs.

When it comes to determining the market performance, it can include time range and starting capital. To construct the Value-added monthly index, a standard modeling technique is a software application.

Mainly the process begins with a hypothetical investment of Rs.1 Lakh. Every month the data is plotted to a relevant graph. Additionally, factors have an impact on the measure of symmetry.

You can use Microsoft Excel to graph the Value added monthly index or use any other benefiting program.

The majority of the financial services firms offer online models, including CTA databases which help in analyzing the return on performance.

Conclusion – Value Added Monthly index

For investor analysis, there are a plethora of market platforms available. Some of the tools can include varying inputs like higher initial capital values and varying durations.

You can use any software programming to construct the Value added monthly index.

In simple terms, the Value added monthly index measures the total return that an investor has earned during a specific time period. The main feature of the index is that it uses NET.

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