SIP (Systematic Investment Plan) investments and lump sum investments are the primary categories under which mutual fund investments fall. Although SIPs have gained much popularity over the years, beginning investors might still need to understand lumpsum investing fundamentals fully.
In contrast to a systematic investment plan (SIP), a lumpsum investment is when an investor makes a one-time, independent investment in a specific programme.
What is a lumpsum calculator?
An online tool called a lumpsum calculator can assess the value of your lump sum mutual fund investment. You can quickly use this method to determine the value of your investment. You will usually be prompted to enter an investment amount, the investment length in years, and the estimated annual rate of return when using an online mutual fund lumpsum calculator.
Using the lumpsum investment calculator, you can determine the anticipated value of your mutual fund investments after the investment period. You can use this to determine whether your lumpsum investment will help you reach your financial objectives.
How does Lumpsum Calculator work?
This calculator allows investors to assess the expected returns on their lump sum investments. Thus, a potential investor can determine whether or not their financial goal will be met by the investment option they have chosen at the finish of the investment term.
The following are some advantages of utilising a lump sum calculator:
- You get the anticipated return for the entire investment time from it. To get a close approximation, you must include information on the investment amount, the estimated rate of return, and duration (1 year, 3 years, etc.).
- Once investors have a projected concept of the maturity value of their investment, it helps them plan and manages their finances more effectively (s).
- Using a lumpsum calculator helps you eliminate human error and saves time wasted performing manual calculations.
- Even inexperienced investors may use a lump sum rate of return calculator with comfort because it is effortless and convenient.
- It should be noted that as investments in mutual funds are exposed to market risks, the returns cannot be precisely predicted.
Lump-sum The future value principle underlies how calculators operate. The lumpsum calculator provides the investment’s future worth at a specific interest rate. You must apply the following calculation:
FV = PV(r + 1)n
Future Value (FV)
Present Value (PV)
n = Number of years
n = Number of years
For instance, let’s say you made a lump sum investment of Rs. 1,000,000 in a 20-year mutual fund plan. You can anticipate a 10% return on your investment.
The future value of the investment can be calculated as follows: FV = 1,00,000(1+0.1)20
FV = Rs 6,72,750.
Your initial investment of Rs. 100,000 has risen to Rs. 6,72,750.
The increase in wealth is Rs 6,72,750 – Rs 1,00,000 = Rs 5,72,750.
Conclusion
An investor can invest a lump sum in an MF programme. An investor chooses this investment options if they have received a lump sum of money from selling some asset.
Large sums of money invested at once can be dangerous and lock up your funds; an early withdrawal might result in exit load fees and penalties. As a result, an investor needs to reconsider all the factors before investing.
This option was typically chosen by the investor with a lump sum of money and ultimately wishes to invest in mutual funds with an emphasis on equities. When the market is favourable for an investor to invest in equities, the lump sum is systematically transferred from debt mutual funds to equity mutual funds.
