Lumpsum investing is when an individual decides to make an investment of a significant amount in a chosen mutual fund, over a given period of time. The motive is to let the money grow with the fluctuations of the market and remain invested for building a substantial future financial corpus. In this regard, a mutual fund lumpsum calculator can help new and existing investors in making a more informed decision when it comes to certain aspects such as how much to invest, tenure and the expected returns, etc. Let us understand lumpsum calculator more:
What is a lumpsum calculator?
It is an easy to use online tool that helps you to get an estimate on your future corpus of lumpsum investment. You need to fill a few necessary details in the calculator such as expected rate of return, investment amount and the investment time period to obtain the results. It is hassle free, convenient way to understand what an investor can expect from their investment in future and thus plan their current investments accordingly.
In the real investments in case of lumpsum, we compare the NAV of the day of investment with the mutual fund NAV of the day when you are calculating the returns, the difference is your gain / loss and the same is depicted as absolute return.
How does lumpsum calculator work?
Lump sum calculator use the compounding principle to calculate returns or growth of investment. Compounding is profits earned on profits re-invested; if profits are re-invested, then you get higher profits and higher returns over long investment horizons. Your investment can grow exponentially over long investment tenures due to the power of compounding. In mutual fund lump sum investment, the entire investment earns returns from the day you made the investment. The mathematical formula used by lump sum calculators is as:-
FV = I X (1 + r %) n
FV = Future Value of Investment
I = Investment Amount
r = Compounded Annual Growth Rate
n = investment tenure in years
Suppose you invested Rs 5 lakhs in a mutual fund scheme. Let us assume that the scheme will give 10% annualized returns. Corpus accumulated by you after 10 years will be = 5 X (1 + 10 %) 10 = 12.97 lakhs.
Benefits of mutual fund lumpsum calculator
The benefits of this financial tool are many, which makes it a popular one among investors. Here are a few for your understanding:
- Mutual fund lumpsum calculator helps investors plan their mutual fund investment more efficiently once they get an idea on how much they can expect in future from lumpsum investments.
- The tool asks for simple details and gives an estimate in seconds to the investor.
- It provides investors with a fairly accurate estimate. It is not possible to give the exact numbers here as mutual fund investments are subject to market risks. But, the tool helps to understand an estimated figure that helps investors to plan ahead investments in mutual funds.
Though investors search for it, there is no tool called the lumpsum SIP calculator available online. Both are different calculators, used for the same purpose – to help investors get an estimate of the future value of their investments in a mutual fund scheme.
We attempted to make an in depth understanding of lumpsum calculators, its purpose, benefits and more in this read.