Value Averaging is a more active variant of Dollar Cost Averaging, where the investor adjusts the amount invested each period to ensure the portfolio grows by a predetermined fixed amount rather than investing a fixed rupee sum each time. If the portfolio rises more than expected (due to market gains), the investor contributes less; if it rises less or falls, the investor contributes more. This systematically enforces buying more when prices are low and less when they are high potentially improving long-term returns versus standard DCA. However, value averaging requires more active monitoring and cash management flexibility, making it more demanding to implement than a straightforward SIP. It is most suited to investors with variable surplus cash and a disciplined rebalancing mindset.
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