nvestments in Mutual Funds can be broadly classified into two types- lumpsum and SIP. A lumpsum investment is when the depositor invests a significant sum of money on a particular mutual fund scheme. SIP or Systematic Investment Plan, on the other hand, entails the investment of smaller amounts on a monthly basis.
Both these type of mutual fund investment strategies have their fair share of benefits. Lumpsum investments are particularly preferred by a majority of investors, as there are lesser variables involved and returns are generally on the higher side
What is a Lump Sum Investment Plan?
Lumpsum investment plan is an investment method in which you make a one-time investment in a scheme of your choice. This typically involves a relatively large amount and you can use this technique of investing when you have a large corpus of cash available, such as after receiving your annual bonus or after a fixed deposit has matured. In the case of lumpsum investments in market-linked products, it is important to be mindful of prevailing market conditions. While timing your lumpsum investment correctly can lead to significant gains, investing at the wrong time can potentially result in losses.
How can a Lump sum Calculator Help You?
Mutual fund investors can use this calculator to figure out the estimated returns on their investments. Before getting into the benefits of using this calculator, one must know the types of return for a lumpsum investment.
- Absolute return
- Total return
- Annualised return
- Point to point return
- Trailing return
- Rolling return
Formula to Calculate MF returns
All lumpsum calculator mutual fund uses a specific method to compute the estimated return on investment. It is essentially a compound interest formula with one of the variables being the number of times the interest is compounded in a year.
The formula is as follows:
A = P (1 + r/n) ^ nt
The variables are mentioned in the table below.
| A | Estimated return |
| P | Present value |
| r | Rate of return |
| t | Duration of investment |
| n | Number of compounded interests in a year |
You can use this formula to compute your mutual funds returns accurately. For example, imagine investing Rs. 15 Lakh in a fund with a 12% return for 5-year period compounding every 6 months.
The estimated return in this scenario will be-
A = Rs. 15, 00,000 (1 + 12%) ^ 5
As you can surmise, it’s a complex equation which may be out of grasp for a majority of investors. A lumpsum MF calculator will calculate it instantly. In this case, your estimated return at the end of a 5-year period shall be Rs. 26, 43, 513.
FAQs
What is a lumpsum investment?
A lumpsum investment involves investing a large amount of money into an asset or financial instrument at one time. This is contrasted with systematic investment plans (SIPs), where you invest smaller amounts regularly over time.
How does a lumpsum investment plan work?
In a lumpsum investment plan, you invest a significant sum of money upfront in mutual funds, stocks, or other investment vehicles. Your returns depend on the performance of the asset over time. For mutual funds, the number of units you purchase is based on the market price (NAV) at the time of investment.