Investors new to the investing world often link mutual fund investments with systematic investment plan (SIP) and assume that these two investment concepts are interchangeable. However, they cannot be more wrong. SIP is merely a way to invest your money in mutual fund investments.
Also, it is not the only way, there’s another way you can invest your assets in mutual funds as well – through lumpsum investment. A lumpsum investment is when an individual makes a one-time investment (usually a substantial sum of money) in mutual funds in one go.
This mode of investment is usually preferred by big investors or skilled investors with adequate knowledge about the markets as lumpsum investments enjoy higher potential for substantial returns. Talking about returns, did you know that you can estimate the returns earned on your mutual fund investments? Lumpsum calculator can help you do the same. Let’s understand the working of a lumpsum return calculator.
What is a lumpsum calculator?
A lumpsum return calculator is a computerized investment tool that helps investors to evaluate and estimate the future returns on their mutual fund investments through lumpsum mode of investment. This saves an investor from all the complex math and calculations, and also saves them ample of time.
A lumpsum calculator may be used to understand the probable returns on
mutual fund investments at the end of the investment horizon, assuming a constant annual return earned on the fund. In simple words, it aids in evaluating the maturity amount for a given present value.
Working of a lumpsum calculator
It is quite simple and effortless to evaluate the future returns on your investments using a
lumpsum calculator. It usually has three input boxes, which is:
1. Investment amount
2. Annual returns earned on the fund
3. Investment tenure
Once an investor puts the correct value against these boxes, all they need to do is press the calculate button. Most fund houses and AMCs (asset management company) offer this facility to investors. One must understand that certain fund houses offer an additional feature known as ‘adjust to inflation’.
This allows an investor to adjust their investments against the apt rate of
inflation. This helps an investor to have a clearer picture of their investments and achieve a realistic picture of their earnings. Let’s understand this with the help of an example.
Arya wishes to Rs 1,00,000 in ABC mutual fund for a period of 10 years. The AMC fund is expected to offer average returns at 12% per annum. Using the lumpsum calculator, Arya would find that her investments are likely to become Rs 3,10,585 by the end of 10 years. However, to have a realistic picture of her earnings, Arya decides to use the inflation button at 6% per annum and achieve a realistic picture of her investments. She would find that her investments would just grow to Rs 1,79,085 at the end of 10 years. Arya uses the lumpsum calculator to better plan her finances and you can do the same. Happy investing!
