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Value Added Monthly Index VAMI What It Is How It Works

Value Added Monthly Index VAMI What It Is How It Works

Value Added Monthly Index (VAMI): What It Is, How It Works

What Is a Value Added Monthly Index (VAMI)?

A value added monthly index (VAMI) tracks the monthly performance of a hypothetical $1,000 investment, assuming reinvestment, over time.

Key Takeaways

  • A value added monthly index (VAMI) shows the monthly returns on a $1,000 investment over time.
  • VAMI is commonly used to depict a fund’s overall performance to investors.
  • VAMI is calculated using net monthly returns starting with a $1,000 initial investment.

Understanding a Value Added Monthly Index (VAMI)

A value added monthly index charts the total return gained by an investor over a specified period. It includes capital gains as well as reinvestment of disbursements, such as dividends and additional interest earned through compounding. VAMI uses NET monthly returns, which deduct applicable fees (e.g., management, incentive, brokerage fees), resulting in the real return.

VAMI is commonly used to depict a fund’s performance to investors due to its simplicity and descriptive nature, showing how $1,000 has performed over time.

VAMI serves various purposes, such as evaluating fund managers, comparing multiple funds and index benchmarks, and providing insight into the growth of invested capital. It is calculated by multiplying the previous month’s VAMI by the current month’s NET return.

  1. VAMI first point = 1,000 * (1 + current month’s NET return)
  2. Subsequent VAMI = Previous VAMI x (1 + current month’s NET return)
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Using VAMI for Comparison

VAMI charts are reliable for comparing the growth of funds and benchmarks. Investors can customize these charts using options from a fund company’s family of funds. VAMI charts offer insight into an investment’s performance over time, including potential expectations.

VAMI charts also visually represent the performance of funds from different asset class categories and benchmark returns for broader analysis.

VAMI Tools

Market platforms provide VAMI tools for investor analysis. These tools allow for varying inputs, such as different initial capital values and durations.

A value added monthly index can be constructed using technical software programming. It typically begins with a hypothetical investment of $1,000, but the initial investment level can vary. When using this modeling technique, ensure the availability and quality of data for relevant charting, as data quality can skew estimated outcomes. VAMI charts can be built in Microsoft Excel or other software programs. Online versions are provided by financial services companies for graphical representation of investment values over time.

Morningstar provides an example with its VAMI tool, part of its research offering for mutual funds. Under the chart tab, investors see the hypothetical growth of an initial $10,000 investment. When researching the Vanguard 500 Index Fund for the one-year period from Jan. 26, 2017, to Jan. 26, 2018, the VAMI chart shows that the investment would have increased to over $12,500.

Morningstar provides an example with its VAMI tool, part of its research offering for mutual funds. Under the chart tab, investors see the hypothetical growth of an initial $10,000 investment. When researching the Vanguard 500 Index Fund for the one-year period from Jan. 26, 2017, to Jan. 26, 2018, the VAMI chart shows that the investment would have increased to over $12,500.

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