Lumpsum Calculator

What is Lumpsum Investment?

Lump-sum investment is an investment in which we deposit a complete amount at once or at once. 

A well-known way or the most used type of investment in mutual funds, these types of investment that involve investing a wholesome amount are generally used or preferred by the high net worth individuals. This is mainly done for long–term investment plans.

They are mainly implied on those investors who have the appetite for high risk and the conditions implied with it.

As such, this investment is made in mutual funds, which are subject to market-related risks, which clearly explains that when an investor invests a lump-sum amount, the money is subject to profit and loss as the market waves and hence when gains are made, they are as huge as the loss.

Knowing about the alternate situations of this investment is that if an investor wants to invest in the short term or does not have the appetite for managing or bearing losses, then they should not opt for this, as if losses are made, it takes a huge amount away from the investor.

The lump-sum investment can be taken as a gift or bonus, earned after some definite years and can be turned into an asset by purchasing one. Hence, the long investing year requires a lot of patience and associated risks in case the market is not profitable.

How can a lump-sum calculator help you?

This calculator is of immense use to mutual fund investors. With the help of a lump-sum calculator, they can calculate the estimated returns they will receive on their investments. There are many types of returns an investor gets on their investment. This includes:

• Point to point return

• Absolute return

• Total return

• Rolling return

• Annualised return

• Trailing return

One can only avail maximum benefits from the mutual fund investments they make when they are well-acquainted and knowledgeable about the aforementioned types of returns. 

This brings us to the main question: how does a lump-sum calculator help you? We have noted down some of the ways in which this calculator helps you below:

• Not only are lump-sum calculators convenient, but they’re also extremely easy to use. A person who isn’t well-versed in mutual fund investments will also face no difficulty when using this calculator.

• Lump-sum calculators provide you with relatively accurate estimates. Of course, 100% accuracy cannot be achieved. This is because mutual fund investments are subject to market risks. The market is ever-changing – you never know what may happen. 

• You can calculate your estimated returns for the entire investment period using a lump-sum calculator. Whether it is 1 year, 3 years, 5 years, or even more, returns for any duration can be calculated through this.

• Finally, as a lump-sum calculator lets you calculate your estimated returns at the end of the investment period, you’ll be able to better plan your finances as well.

Example of lump-sum investment calculation

1. Suppose an investor has invested Rs. 2,00,000 in a mutual fund. The investment is made for 10 years, and the rate of return is 15%.

Now the calculation which takes place is as follows:

FV = 2,00,000(1+1.5) ^10

Therefore, FV = Rs. 8,09,111

2. Suppose an investor has invested Rs. 3,50,000 in a mutual fund. The investment is made for 10 years, and the rate of return is 17%.

Now the calculation which takes place is as follows:

FV = 3,50,000(1+1.7) ^10

Therefore, FV = Rs. 9,45,000

By this example, we can understand how a lump-sum calculator works and how we can use this tool for calculating, which will help us understand whether the investment should be made.

How does a lump-sum work?

A lump-sum calculator has a formula box. We input the amount invested, the period in years, followed by the investor's yearly percentage on that particular investment. As all these values are inserted, the investor's future wealth or the amount expected will be visible immediately.

Benefits of the lump-sum calculator

• This calculating tool helps one provide the approximate value of the returns, including the entire investment period. Interest year is 3 years, 5 years or 10 years, whichever period one wants to or is investing for.

• The calculator can be used very conveniently and simply allows you to calculate your wealth returns and understand and estimate your investment amount.
  
  

• Besides being facile to use and providing ease in calculation, it also provides results with accuracy. Known that the investments made in a mutual fund are conditional to market risk, the calculated returns cannot be accurate, and the projection of the returns may or may not be exact.
  
  
• As the calculator is a tool, it saves the time and energy of the investor, which would be wasted by doing the calculation manually, followed by eliminating the errors and mistakes done by calculating it manually.
  
  
• The tool allows the person or the investor to change the details. Hence, the person can input various combinations, which helps to understand the profitable or most appropriate combination.
  
  
• The lump-sum calculator provides better finances for the investor as the returns they estimate are more likely to be achieved after their investment period.

Inferring that this tool is one of the main components which enables an investor to understand how to make an investment considering the amount, period, and rate of return for that particular investment,

with the help of an easy to understand formula which in brief tells the overall scenario of the investment which helps the investor to plan his fiscal matters for a systematic future.

How to use a lump-sum calculator?

This calculator helps estimate the future value of an amount invested by the investor. So basically, for calculating such a complex arrival in this, 3 different parameters are taken into consideration:

• Present value: This is the amount invested at the time of investment by the investor in lumpsum.

• No. of years: This refers to the period for which the amount is invested.
  
  

• Rate of interest: It particularly shows at which rate per cent the amount is being invested hence taking a certain percentage and looking at the future value of the amount invested.

FV = PV (1+r) ^n FV

where,

• FV = future value                             

• r = rate

• PV = present value                          

  n = number of years

Conclusion

Here, we can understand that lump-sum investment is a good source of maximising today's wealth and increasing it after a certain period and later turning them into assets.

For investing purposes, investors need to be confirmed about the returns and alert about the market risks associated with this investment. In that case, the lump-sum calculator helps understand the basic market risks and reach the most convincing investment pattern.

Frequently Asked Question

Q1. How does a lump-sum calculator work?

Ans. These calculators work on the principle related to or dependent on the future value of the amount invested. It follows a formula which is mathematically written as 

FV = PV (1+r)^n FV

where,

• FV = future value
                               
• r = rate
  
  
• PV = present value
                            
• n = number of years

Q2. Which is better, lump-sum or SIP?

Ans. A SIP (Systematic Investment Plan) enables an investor to invest with small funds and for a short term with less or no risk is pretty much a good opportunity for the budget concerned people or investors.

Now looking at the other side of the coin, the lump-sum investment allows you to invest your money for the long term including more returns which is anyways subject to market conditions, which mostly suits the investor who can invest in big amounts at once and can wait for a longer duration for the maximised returns.

Q3. Which is a more advantageous lump-sum investment or sip?

Ans. When it comes to the advantageous prospect of these different types of investment, it is the investor's call.

If a particular person is in the beginning stage of investment, they can start with smaller funds and invest in the sip, and if the investor is of advanced nature with good finances, they can go for lump-sum investments.

Q4. What is the difference between lump-sum investment and sip?

Ans.