Your Queries: If you withdraw profits from SIP, your target amount will also go down

If I withdraw profit from my SIP, does my target amount decrease?
—Binoy Biswas
Projected amount of a SIP investment is in turn dependent on the SIP amount, the assumed rate of return and the investment horizon. In case of withdra-wals, the projected amount at the end of your horizon would reduce by the future value of this withdrawal at the end of investment horizon, assuming no changes in future amount, time of SIP contributions, expected return and residual time horizon). Post withdrawal (assuming no re-investment), to attain the same corpus amount, you may have to either increase future contributions, or assume a higher expected return (probably requiring investment in riskier instruments) or extend your goal horizon.

I started investing three years ago in equity MF and the returns are just 1% from a large cap fund. So, how are the claims of high returns from equity justified?
—A K Arora
Equity investments have delivered higher returns than fixed income over long periods, albeit with higher volatility. Over 7- and 10-year rolling periods from August 1, 2006 to Aug 31, 2020, domestic equities (S&P BSE 500 TR INR) have outperformed fixed-income (CCIL All Sovereign TR INR) delivering 11.44% and 10.80% returns respectively on average, compared to 8.39% and 8.41% respectively by fixed income. Over the trailing 3-years, domestic equities have delivered annualised 3.90% annualised returns as of September 15, 2020, amid the slowdown in the economy (even pre-Covid) intensified by the impact of the Covid-19 pandemic.

The median large-cap fund return during the same period has been 3.42%, with fund returns (annualised) ranging from -0.27% to 9.99%. You should evaluate the performance of the funds in your portfolio vis-à-vis that of their respective category peers. If a fund has been delivering below-average performance consistently, switch to a more consistent one. Valuations prevalent at the time of investment play a defining role in perfor-mance of your portfolio. It is advisable to invest via SIP route which enables investors to average cost of investments. If you have a long term horizon, you may remain invested as equities tend to deliver positive inflation-adjusted returns in the long run.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonalfinance@expressindia.com