A lump sum investment is investing all the money at once. For investors investing in mutual funds, the alternative of investing the amount in a lump sum is quite popular. For example, if you receive a gift from someone of Rs. 5 lakhs, and you decide to invest the entire amount in a mutual fund scheme, then it is called a lump sum investment. Lumpsum investment calculators are readily available online. These calculators act as lumpsum investment return calculators or calculate lumpsum investment online, for a given rate of return.
Generally, lump sum investments are common for high-net-worth investors or big-ticket investors. For a lump sum investment, it is advisable to have a high-risk tolerance. Lump sum investments are good alternatives to long-run investment options.
Benefits of lumpsum calculator for long-term and short-term investment planning
The process of financial planning has various steps attached to it and one of the most important steps is to decide the time horizon for your investments. The time horizon depicts the risk and the return one must expect. The horizons can either be short-term or long-term.
- The lumpsum investment return calculator helps to calculate the return on investment at the beginning of the investment itself. This is beneficial for long-term investors as they need to park their funds for a very long time.
- To calculate the lumpsum investment online, one can easily refer to the returns the investment options are providing so as to know the initial investment amount.
- In the case of short-term investment options, it helps to compare the returns from various investment options and select the best available option.
- The lumpsum calculators irrespective of the time horizon will reflect the financial goal that will be reached by the investor with a particular investment amount.
- For short-term investments, the finances are managed better as the maturity value is known well in advance and the budget can be prepared accordingly.
- Long-term investment planning goes with a lot of effort and choosing the best possible investment alternative. The lumpsum investment return calculator helps to know the maturity value at the point of starting the investment.
How does a lumpsum calculator work?
The basic idea or concept of how lump sum calculators work is based on future value. Considering a rate of return, the number of years of investment, and the investment amount, the lump sum calculators are able to calculate the maturity value or the amount to be received by the investor. The formula for calculating the future value of any investment alternative can be given as:
A = estimated return
P= Present value
R = estimated rate of return
T = total investment duration
N = Number of times interest is compounded
The formula can be mathematically represented as:
A = P (1+r/n)^nt
Taking an example, if the present value of your investment is Rs. 5 lakhs. You want to invest the amount for a period of 10 years with a decided rate of return of 10%. The maturity value will be
A = P (1+r/n)^nt
A = 5,00,000 (1+10/1)^10(1)
A = Rs. 12,96,871
This gives an idea as so to how much wealth will be gained by investing Rs. 5 lakhs today for a period of ten years with an average return of 10%.
For the purpose of personal finance, lumpsum investment calculators work as excellent tools to decide whether to select a particular investment alternative. The results are obtained within seconds as values are entered online.
To summarise
Lumpsum calculators are simple and convenient to use. The lumpsum calculators typically ask you to enter the present value of the investment, the estimated rate of return, and the number of times interest will be compounded for the investment. One of the most favourable financial instruments for which lumpsum calculators are used in mutual funds. One can easily compare mutual funds and know the maturity value of the fund. This online tool has made personal finance easy and more understandable for laymen. It helps people to bypass complex formulae and simply enter values to know the desired results. The lumpsum calculator is both advantageous and accurate and one can make the most of it as it is easily available to calculate the lumpsum investment online.
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