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A lumpsum investment is a common method of investing money in financial instruments like life insurance, mutual funds, fixed deposit etc. If you invest a large sum of money in a financial instrument in one go, instead of multiple smaller payments it is called the lumpsum investment.
A large number of investors choose to invest in lump sum investments since there are fewer transactions involved, and suits their risk appetite.
Now to understand in which situation you might do a lumpsum investment – suppose for instance, you receive a nice bonus, and you are left with a handsome amount to invest after paying for all of your pre-planned obligations and expenditures. You can then invest the entire amount into a specific lump sum investment plan.
Benefits of Lumpsum Investment
A lump sum investment involves making a sizeable investment in any financial instrument of your choice.
Here are some benefits of lump sum investment:
● One-Time Investment
Lump sum investment is a one-time investment in a particular scheme/plan for a specific duration. It is generally chosen by individuals who have a large amount of money handy for making investments.
● Smarter Investment Management
When someone wants to make a lump sum investment, they can manage the timing of their investment as per their risk appetite.
● Convenience
Individuals who want to invest a big sum of money can often find it more convenient to make lump sum investments.
● Compounding Benefits
The power of compounding can help you gain profits on the interest you receive on your investment for financial instruments such as fixed deposit
If you've opted to make a lump sum investment in a mutual fund, the next section can be quite useful.
How do lumpsum calculators help investors?
The lumpsum investment calculator is helpful for investors to estimate the returns that they will get on their investment.
So knowing how a lump sum investment calculator works is necessary for the person who is investing to to get maximum benefit from their investment.
● It enables the investor to assess the potential returns he can get from the investment.
● It is user-friendly. So anyone can easily use this calculator with minimal effort.
● Calculators provide immediate results for free which saves time and effort for the investor.
● A lump sum calculator helps an investor plan his investment based on estimated returns they will get after the conclusion of the investment duration.
Advantages of Using a Lumpsum Calculator
A lumpsum investment calculator is conducive to use, and it has many advantages.
1. An investment calculator helps you get an idea about an investment plan with the assessment. However, it will not provide exact results in case of mutual funds because the outcome depends on market conditions.
2. It helps you plan for various investment goals based on your estimated returns.
3. It is a time-saving tool; as you know, technology makes everything easy and saves you the time and effort of making manual calculations.
4. When an individual understands the projected earnings, they should manage their ongoing finances and choose a suitable aim for their investments.
A lumpsum investment calculator is conducive to use, and it has many advantages.
1. An investment calculator helps you get an idea about an investment plan with the assessment. However, it will not provide exact results in case of mutual funds because the outcome depends on market conditions.
2. It helps you plan for various investment goals based on your estimated returns.
3. It is a time-saving tool; as you know, technology makes everything easy and saves you the time and effort of making manual calculations.
4. When an individual understands the projected earnings, they should manage their ongoing finances and choose a suitable aim for their investments.
Formula to Calculate Returns on Lump Sum Investment
The investor must enter information such as the total original investment, estimated rate of return, and time duration into the lump sum calculator. The online calculator can instantly calculate estimated investment returns based on these data.
The calculator is based on the equation below
X = Y(1+R/N)^NT
Here,
X = Estimated return
Y= Present Value of invested amount
R = Estimated Rate of interest (%)
T= Duration of the investment
N = Number of times interest is compounded in a year
So using this formula, if you invest Rs. 2 lakh for 20 years and earn 12% p.a. return on your investment and the interest is assumed to be compounded annually, the future value of your investment will be approximately Rs. 19.29 lakh.
Conclusion
We have tried to cover the key aspect of lump sum investments and define lumpsum investment, including its benefits and how a lump sum calculator can make your job easy by saving you time and eliminating the need for making manual calculations.
FAQs
1. How accurately does an investment calculator predict returns?
Ans. Investment calculators use your inputs to calculate the potential returns from your investment.
2. How does someone start making lump sum investment?
Ans. If an investor wishes to invest for a long duration and acknowledges the potential risks involved, a lump sum transaction is suggested as a viable investment strategy. The investor must go through with all the types of lumpsum investments and should calculate the rate of return from investments.
3. Which is more beneficial Lumpsum or SIP?
Ans. Both the investment styles have their merits and demerits. A lumpsum investment might make the investor stress free as he doesn't have to remember the dates of installments, but it can feel like a burden because you have to invest a large amount of money in one go. And as far as SIP is concerned, it might not feel like a financial burden, but it requires more time to make a large investment along with long-term involvement of the investor.
4. Distinguish between lumpsum and SIP?
Ans. A lumpsum investment means you are investing a sizeable amount in a specific scheme for a fixed duration, while SIP requires more time but smaller investments spread over a longer period of time.
5. How does a lumpsum calculator helps you in your investment?
Ans. The lumpsum calculator enables you to estimate the quantum of money you can get at the end of your investment tenure. An investment calculator can assist you in determining whether the investment plan you have chosen will satisfy your financial objectives. The calculator also allows you to adjust key variables like the investment amount, time duration, and return rate to determine multiple potential outcomes from your investment. This will assist you in determining a suitable investment strategy for your investment goals.
Sources:
https://www.fincash.com/l/benefits-of-lump-sum-investing-in-mutual-funds
https://www.etmoney.com/tools-and-calculators/lumpsum-calculator
https://www.etmoney.com/tools-and-calculators/lumpsum-calculator
ARN No: June22/Bg/02
