One of the famous American investors once said, "The principal role of Mutual Fund is to serve its investors." Mutual Funds are an investment vehicle in which the money of investors is pooled in and the return over that capital is earned over a long-term period. Lump-sum and SIP (Systematic Investment Plan) are the 2 sub-categories of Mutual Funds. While investing in a SIP requires a fixed amount at regular intervals, lump-sum investment on the other hand is when an investor invests a weighty amount on 1 Mutual Fund.Read more
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Both lump sum and SIP investments have their benefits and drawbacks, but here let us understand in-depth about the lump sum investment, lump sum calculator, and how the investment process work.
Unlike SIP, in a lump-sum investment the whole amount is invested in one single payment. In simple terms, if an investor invests his/her entire investment amount on 1 mutual fund in a go, then it is known as lump sum investment in MFs.
The lump-sum investment method is commonly used by HNIs (High Net Worth Individuals) or big-shot investors who have the large sum for investment purposes or investors who have long-term investment goals. Investment by the lump sum method in MFs requires deep analysis of the current market and careful investing.
A tool that helps in the calculation of the amount earned or lost over a certain period when invested in a lump sum method in a mutual fund is known as a lump sum calculator. By putting in some important details like the number of investment years, the amount invested, etc. in the lump sum calculator, it will depict the expected gain or loss with just a few clicks.
To calculate the lump sum amount in a mutual fund, an investor has to follow this simple compound interest formula.
A = P (1 + r/n) ^ nt
The formula, if elaborated is:
A = The estimation of return
P = Invested value (present)
r = The estimated rate of return
t = Term of investment
n = Number of compound interests in a year
It is important to use the calculator for the computation of the estimated lump sum return amount as it is a complicated equation that is difficult to understand by major investors.
This problem-solving lump sum calculator has a lot of benefits that make the life of an investor easy and complication-free.
Calculation of lump sum returns on mutual funds is quite a task manually and the accuracy cannot be defined as they are subjected to market risk. The lump-sum calculator helps you to get the closest possible figure of returns.
As the returns can never be calculated accurately, the lump sum calculator helps you know the closest estimated return which helps the investor plan their future accordingly.
The biggest benefit of the lump sum calculator is that it is an online tool. It is easily accessible and can be used at any time of the day without any limitations.
It is difficult to calculate the lump sum returns manually by most investors as the formula for return calculation is very complex. By using the lump sum calculator, the manual work and the inaccuracy of the return amount are reduced, giving the investor a better result.
Lump-sum investments are widely popular investment vehicles in MFs and are considered to be offering high returns if invested for the long term. Lump-sum investments are beneficial if the investor invests wisely keeping all the market risks in mind.