Mutual fund investments can be roughly classified as either lump sum or systematic investment plans (SIP). When a depositor deposits a significant amount of money in a particular mutual fund scheme, this is referred to as a lump sum investment. A systematic Investment Plan, on the other hand, involves a monthly investment of lesser amounts.
Both of these mutual fund investment techniques offer a number of advantages. The majority of investors choose lump-sum investments since there are fewer variables involved and returns are often on the higher end. To estimate the return on your lump sum investment in a mutual fund, you can use an online mutual fund lump sum calculator.
How can a Lumpsum Calculator Help You?
The mutual fund lump sum or one-time investment calculator is an easy-to-use tool that offers an investor with the wealth gained and maturity value for a specific investment, investment duration, and predicted returns. For a potential investor, it is essential to assess whether the chosen investment option will achieve the desired results at the conclusion of the investment term.
The mutual fund calculator contains both, a SIP calculator and a lumpsum calculator. It can be used by an investor to compute returns under both the approach and SIP.
The mutual fund calculator assists investors in estimating their future returns and wealth creation for a certain investment period.
- A calculator allows an investor to modify the period, amount, and rate of return in order to estimate the returns. The investor can set numerous combinations of the amount to be invested, the investment period, and the rate of return before determining the optimal combination.
- With a financial goal in mind, an investor can utilize the calculator to determine whether or not his/her objectives are being reached.
- The calculator is super easy and simple to use. An investor needs only the pertinent information to hand
- Once an investor has an estimate of their investment, he will be able to handle his finances more efficiently.
- It reduces the investor’s manual calculation time and aids in the prevention of errors.
Formula to Calculate Lumpsum Returns
Every lumpsum calculator mutual fund employs a certain approach to evaluate the return on investment. It is essentially a formula for compound interest, where one of the variables is the number of times interest is compounded per year.
The following is the formula:
A = P (1 + r/n) ^ nt
where ‘A’ represents the estimated return, ‘P’ represents the present value, ‘r’ represents the rate of return, ‘t’ represents the length of the investment, and ‘n’ represents the number of compounded interests each year.
Let’s examine this with the aid of an illustration.
Using the aforementioned calculation, if you invest INR 45 lakhs in a fund that guarantees a 12% return for five years and compounded every six months:
A = 10,00,000 (1+ 12%) ^ 5
It is a difficult equation to comprehend for the majority of investors. A lump sum calculator quickly solves this problem and determines the projected return on investment, which is INR 7,62,342 and the entire value of your investment after 5 years, is INR 17,62,342.
How to Use Lumpsum Calculator?
The lumpsum calculator is user-friendly; an investor only needs to enter the needed data points and the calculator will calculate the investment’s return and maturity value.
- The lump sum amount you are willing to invest in a mutual fund.
- The length of time you wish to invest in the mutual fund.
- The anticipated rate of return on the investment.
After entering the aforementioned factors, the calculator will calculate the future value of the investment.
Advantages of Lumpsum MF Investment
- A one-time or lump-sum investment is more convenient. An investor invests once and is free to invest for many years without worrying about installment dates or monthly savings.
- The financial objective of an investor is to make investments with a horizon of at least 5-7 years.
- A mutual fund’s investments are made in the underlying assets. Long-term, these investments yield a greater return. The earlier an investment is made, the greater the return.
Ques- Which is the best fund for lumpsum investment?
Ans – As there are numerous types of mutual funds, including equities mutual funds, debt mutual funds, hybrid mutual funds, etc., with varying portfolio compositions, risk profiles, and investment aims. You can evaluate their past returns on Kuvera and invest in accordance with your risk tolerance, time horizon, and financial objectives. However, diversification in many assets and funds with a long-term perspective is the key to long-term wealth creation, as historical returns are no guarantee of future returns.