Definition of the monthly value added index (VAMI)

What is a monthly value added index (VAMI)?

A Value Added Monthly Index (VAMI) tracks the monthly performance of a hypothetical $ 1,000 investment, assuming the reinvestment, over a period of time.

Key takeaways

  • A Value Added Monthly Index (VAMI) shows what the monthly returns would have been over time on a proposed $ 1,000 investment.
  • VAMI is one of the most widely used metrics to represent the overall performance of a fund to investors.
  • VAMI is calculated using net monthly returns that start with $ 1,000 at time zero.

Understanding a monthly value-added index

A monthly value-added index shows the total return earned by an investor over a specified period of time. It includes capital gains, as well as the reinvestment of any disbursements, such as dividends and additional interest earned through capitalization. Another key aspect of VAMI is that it is calculated using NET monthly returns. This means that all applicable fees, such as administration, incentives, brokerage fees, have already been deducted and what is left is the actual return.

This is one of the most commonly used metrics to represent the overall performance of a fund to investors. The popularity of VAMI is due to the fact that it is quite descriptive, showing an investor how $ 1,000 has performed over a certain period and that it is easy to understand.

A monthly value-added index can be used for a variety of purposes. It can provide information on the growth of invested capital over time. Sometimes it can be used to evaluate the performance of a fund manager. It is also useful for comparing various funds and benchmark indices. The VAMI is calculated by multiplying the VAMI of the previous month by the NET performance of the current month.

  1. VAMI first point = 1,000 * (1 + NET return of the current month)
  2. Subsequent VAMI = Previous VAMI x (1 + NET performance of the current month)

Using VAMI for comparison

VAMI charts can be a reliable way to compare the growth of various funds and benchmarks in the market. Investors can customize these charts to choose from a fund company’s family of fund options. VAMI charts provide investors with insight into an investment’s performance over time. They can also provide information on potential expectations with future projections.

VAMI charts can also provide a visual representation of how similar funds, or funds from different categories of asset classes, have performed over a specific period of time, with benchmark returns also included for further analysis.

VAMI tools

Numerous market platforms provide VAMI tools for investor analysis. These tools can allow for different inputs, such as higher initial capital values ​​and variable durations.

A monthly value-added index can be constructed using technical software programming. You usually start with a hypothetical investment of $ 1,000. However, initial investment levels may vary. When using this modeling technique, it is important to ensure the availability and quality of the data to provide relevant graphs, as the estimated results may be biased by the quality of the data. VAMI charts can be created in Microsoft Excel or other technical software programs. Financial services companies often provide online versions to help provide a graphical representation of investment values ​​over time.

Morningstar offers an example with its VAMI tool, which is part of its mutual fund research offering. Under the chart tab, investors receive hypothetical growth from an initial investment of $ 10,000. When investigating the Vanguard Index Fund 500 For the one-year period from January 26, 2017 to January 26, 2018, the VAMI chart shows that an investor’s $ 10,000 investment would have risen to more than $ 12,500.

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Mark Holland

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