Posted in Finance, Accounting and Economics Terms, Total Reads: 73
Definition: Value Added Monthly Index (VAMI)
Value added monthly index or VAMI is a method of tracking returns on an investment for a given period of time. VAMI is calculated by taking a hypothetical investment of $1000. If an investor wants to measure his VAMI, then he/she needs to reinvest all the dividends and all the additional returns gained through compounding of the assets invested in. Thus, it can be said that VAMI gives us the total returns by an investor after he/ she has reinvested all the money that he/she has gained by making the earlier investments.
The formula for calculating VAMI for the current month can be represented as
Current month VAMI = Previous month VAMI x (1 + Current Rate of Return)
Let us consider an example by taking $1000 as the initial monthly investment and rate of return as 10%, 11%, 12% and 13% for the years 2012,2013,2014 and 2015 respectively. Now, let us calculate the VAMI for all the four years.