Lumpsum Calculator

Mutual fund investments can broadly be done using either of the two ways- SIP (Systematic Investment Plan) and Lumpsum.

SIP or Systematic Investment Plan is a way of investing in mutual funds in which investors pay regular amounts of money to buy units and invest in funds via the SIP mode. This allows the investors to build capital over specific tenure through small contributions and inculcates a habit of disciplined investment among them. Lumpsum, on the other hand, is a way of investing in mutual funds in which investors pay the entire investment amount in one go. This might make a hole in the investor’s pocket if the investment is not planned well in advance.

Irrespective of which way you choose to invest, the major purpose of investing in mutual funds is wealth accumulation and wealth creation. When you invest in mutual funds, you earn returns on them over the investment tenure. Now, to have an idea of how much returns you would earn on the investment amount, you can use a mutual fund investment return calculator such as SIP calculator from Paytm. However, if you invest via the lumpsum method, you will have to use the lumpsum calculator as explained below!

What is a Lumpsum Calculator?

A lumpsum calculator basically helps you calculate the amount of returns that you would earn on your mutual fund investments over a specific period of time. Note that a lumpsum investment offers the following types of returns-

• Absolute Return on Investment
• Total Return on Investment
• Annualized Return on Investment
• Point to Point Return on Investment
• Trailing Return on Investment
• Rolling Return on Investment

To avail of the maximum benefits from your lumpsum investment, it is vital that you understand all these types of returns in detail.

How does a Lumpsum Calculator Work?

A lumpsum calculator essentially works on a compound interest formula, having one of the variables as the number of times for which the interest gets compounded in a year.

The formula is explained as below-

A = P (1+r/n) ^ nt

Where-
A = Estimated Return
P = Present Value
r = Rate of Return
t = Duration of Investment
n = Number of compounded interests in a year

Let’s take an example to understand how this formula works- Suppose, you invest a sum of Rs. 15 lakh via lumpsum for a duration of 5 years at a 12% return, compounded every 6 months.

As per the above formula, your returns on investment would be-

A = 15,00,000 (1 + 12%) ^ 5
A = Rs. 26,43,513

It is important to note that the rate of interest on your lumpsum investment would vary depending upon the varying market conditions. Hence, the return on investment derived using this formula or lumpsum calculator might vary.

How to Calculate Returns Using a Lumpsum Calculator?

Using the lumpsum Calculator, you simply need to enter the basic details related to your investment. These details include your current investment amount, your rate of return, time duration of your investment and the number of compounded interests in a year.

Upon entering these details, the lumpsum calculator would instantly show you your investment amount, estimated returns on your investment and the total amount that you would receive at the end of your investment tenure.

Why Use a Lumpsum Calculator?

The following reasons explain why you should use a lumpsum calculator to estimate the returns on your lumpsum investment-

• A lumpsum calculator provides you with the estimated returns on your investment for the entire investment duration. You can simply select your investment tenure as 1, 3 or 5-year and calculate the estimated returns for the same
• It is very convenient, easy and quick to use a lumpsum calculator
• Even though the returns on mutual funds investments are subject to market fluctuations, and hence, cannot be predicted in advance; a lumpsum calculator offers a reasonably accurate return
• Using a lumpsum calculator, you can easily plan your finances depending on the estimated returns on your investment which you are most likely to receive at the end of your investment tenure

Who should Invest via Lumpsum?

Anyone who seeks to invest in mutual funds can invest via the lumpsum method. However, a few factors must be borne in mind such as-

• Investors with a low risk appetite - Although all mutual funds are subject to market risks, funds vary on the risk scale from low to moderate to high risk. Lumpsum investment is good for short-term debt funds, which also carry low risk
• Investors who have surplus funds - Funds that are performing well catch the eyeballs and more investors invest their money, which increases the NAV - Net Asset Value (per unit market value of the fund) of the fund. Suppose, you invest a lump-sum when the NAV is high, you will have to purchase units at higher costs
• Investors with a longer investment duration - A lump-sum mode of investment is usually suggested for a longer duration of 5-7 years unless you invest in short-term debt funds

Wrapping it Up:

Lumpsum calculator calculates the wealth gain and expected returns on your lumpsum investments in mutual funds. Using a lumpsum calculator, you will get a rough estimate on the amount that you will receive upon maturity of your mutual fund investments, based on a projected annual return rate. Using mutual fund investment calculators, you can easily plan your finances based on the expected investment returns. It also helps you compute an estimation of the total value of your investment at the end of your investment tenure.