Should I lower my SIP from Rs 10,000 to Rs 5,000 per month due to poor returns?
– Mahesh Gupta
The main benefit of SIP is rupee cost averaging, an investment technique applied to regular fixed instalments. As the amount is fixed and regular, more units are bought when the market price of shares is low and lesser units are bought when the price is high. This is advantageous in volatile markets. Hence, you should continue your SIP as reducing the SIP amount would deprive your portfolio of buying units at lower prices.

Is indexation possible only in debt fund? How is it done to calculate tax liability?
—Mahesh Rajagopal
Indexation benefit is only applicable to non-equity oriented mutual funds (debt funds, foreign equity funds, fund-of-funds) and is based on a cost inflation index (notified by finance ministry). Only if held for more than three years, the cost price is indexed to reflect the cost price in today’s terms and only the gain (computed as difference in final amount and indexed cost price – instead of actual cost price) is taxed. Hence, indexation benefits investors as it lowers tax outgo.

I have opted for growth option for my equity mutual fund. How would I know if the dividend given by the fund house has been added in my folio?
—Pawan Singh
Growth plans do not declare dividends. So you need not check for any dividend declarations, as there wouldn’t be any.

After investing in a large-cap blue chip fund for 18 months, the fund value of my SIP is less than the principal amount invested. Had I kept the money in bank deposit, I would have got 6% returns. Should I stop my SIP?
—Arvind Kumar
The primary benefit of SIP is rupee cost averaging. As the amount is fixed and regular, more units are bought when the market price of shares is low and lesser units are bought when the price is high.This is advantageous in volatile markets. Hence, you should continue your SIP. It is advisable to invest in equities with atleast a five-year horizon, as equities tend to be volatile in the short term, but over the long term tend to beat inflation and returns from fixed income / debt securities, unless your risk appetite is very low.

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