A lump-sum investment plan includes a one-time investment, where a huge amount is invested under a chosen plan. This Investment Plan should be availed when an investor has huge corpus funds in hand, for instance, any fixed deposit or annual bonus, if any. One should be careful while investing in market-linked lump sum investments, as they may sometimes lead to significant gains & sometimes to losses. This plan best suits long-term investors, who have a high risk tolerance level. It becomes important to well align the investment plan with the investor’s financial objectives, investment horizon, & risk tolerance level.
What is a Lump Sum Calculator?
A lump sum calculator is an online tool that lets an investor make an estimate of the expected returns on the amount of lump sum investment made. This calculator should be used when investors invest a single amount in a lump sum. It involves providing some details, such as investment amount, expected annual rate of return, & investment tenure, to calculate the expected corpus funds that will be generated.
Know the Inputs
Let us now know what all the details are required to be entered in this calculator:
- Investment Amount
This means the desired amount to be invested.
- Expected Rate of Return
This means the return expected from the investment.
- Investment Period
This means the tenure for which an investor wants to remain invested.
Know the Outputs
Let us now know what all the outcomes are from this calculator for an investor:
- Total Invested Amount
It allows an investor to know the total amount invested as the main principal amount throughout the investment tenure.
- Total Interest Earned
It allows an investor to know the amount of income earned in addition to the principal amount in terms of interest, which adds up to their portfolio.
- Total Value of Investment
It lets an investor assess the total investment value of their portfolio once the investment tenure is over, which includes the principal amount & interest earned thereon.
Lumpsum Return Calculator Formula
Let us have a look at the formula used by the Lumpsum Calculator:
A = P (1 + r/n) ^ nt
Where,
A = Estimated Return
P = Lump sum Amount Invested, i.e. Present Value
r = Expected Rate of return on investment
n = number of times interest is compounded per year
t = total period of investment in years, i.e. duration
Let us understand this in a better way through an example:
Let us suppose Mr X invests INR 50,000 in funds with an expected annual rate of return of 15%. This amount is to be invested for 5 years with interest to be compounded on an annual basis. According to the formula,
A = P (1 + r/n) ^ nt
= 50,000 (1 + 0.15 / 1) (1 * 5)
= INR 100568
Steps to Use a Lumpsum Calculator
Provided are the steps to be followed to use a lump sum calculator:
Step 1: Visit the official website of any bank or financial institution.
Step 2: Look for the Lump sum calculator.
Step 3: Provide the investment amount, investment tenure, & annual return rate.
Step 4: Assess the expected returns.
Step 5: Next, click the “View Plans” to check for additional details, if any are provided.
Step 6: Additionally, one can also seek advice from a financial consultant for investment-related decisions.
Advantages of a Lump Sum Calculator
Before we go through the benefits of a lump sum calculator, let us know the type of returns available in case of lump sum investments. This will help an investor avail the maximum benefits out of the investments made in mutual funds.
- Total Return
- Rolling Return
- Point-to-Point Return
- Absolute Return
- Trailing Return
- Annualized Return
Now, let us go through the advantages of a Lump sum calculator:
- Risk Assessment:
By providing the details such as expected return rate & amount of investment, this calculator lets you assess the associated risk with your investments, if any.
- Estimated Returns:
This calculator provides the details of estimated returns for the complete investment tenure, which includes estimates for 1, 3, or 5 years of tenure.
- Time-Saving:
If an investor calculates the expected returns manually, the process may be time-consuming, & the outcome may be prone to errors. Hence, this calculator makes the process simpler & automated, providing quicker & more accurate results.
- Goal Customisation:
Whether the main objective of an investor is building retirement corpus funds or purchasing a house, this calculator helps make projections. This means an investor can best align their calculations according to their financial objectives.
- Adjustable Variables:
This calculator allows an investor to experiment with the outcomes in terms of expected returns. This includes providing different investment amounts & expected return rates to get the most appropriate outcome that best aligns the investor’s risk tolerance level.
- Quick & Convenient:
This calculator provides a quick & hassle-free method to calculate the estimated returns depending on the lump sum amount invested.
When to Opt for a Lump Sum Investment
A lump sum investment should be considered by an investor if a huge amount of funds is available to be invested. This method of investment is considered by those investors who consider market conditions to be favourable, i.e. bull period. Also, if an investor is looking for long-term investment opportunities, such as buying a house property or retirement planning, a lump sum investment plan will help provide high returns in comparison to a periodic investment plan, such as SIPs.
Conclusion
It is completely an investor’s choice to select between a Systematic investment plan & a lump sum plan. This decision entirely depends on the financial objectives, investment horizon, & risk tolerance level of an investor. Additionally, if this investment plan is opted for, an investor should use a lump sum calculator. This is because it will help to get accurate results & make better projections, enabling better financial planning & informed decision-making.
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