Mutual fund investments are broadly classified into two categories – SIP (Systematic Investment Plan) and lumpsum investments. While SIPs have become quite popular over the years, novice investors may not have a firm grasp on the concepts of lumpsum investment.
Unlike SIP, a lumpsum investment is when an investor makes an independent investment in a particular scheme in a single transaction.
A lumpsum investment calculator helps estimate the returns* made by an investor on a lumpsum investment. Simply fill in the necessary details and the calculator will compute an approximation of the maturity value based on the data provided.
Investors can use this calculator to gauge the estimated returns on their lumpsum investments. A prospective investor can thus evaluate whether a selected investment option is meeting their financial goal at the end of the investment term or not.
Here are some of the benefits of using a lumpsum calculator:
A mutual fund lumpsum calculator is an automated tool that does all the complicated math for you. An investor usually needs to enter the following details into the tool:
Once the above inputs are made, the lumpsum calculator will calculate the maturity value of the mutual fund investment.
Lumpsum calculators use a specific formula to compute the estimated returns on investments. It is a compound interest formula with one of the variables being the number of times the interest is compounded in a year.
A = P (1 + r/n) ^ nt
Here,
A = estimated returns
P = Present value of investment
r = estimated rate of return
t = tenure
n = number of compound interests in a year
Let’s understand this with the help of an example.
Rakesh invests Rs15 lakh in a mutual fund scheme that offers average returns at the rate of 12% p.a. and compounds every six months for 5 years.
The estimated future returns, in this case, would be:
A = 15,00,000 (1 + 12/2) ^ 2/5
As you can surmise, this is a complex equation that could be out of grasp for a majority of novice investors. Here’s where a lumpsum calculator comes to your rescue and makes this calculation instantly.
In this case, the estimated returns at the end of the tenure would be Rs26,43,513.
As stated earlier, an investor can choose to invest in mutual funds via two methods – SIP or lumpsum. Let’s understand these two investment methods in detail:
Under a lumpsum investment, an investor invests a certain sum in a single transaction. However, it could be risky if you decide to invest a significant corpus at once.
To avoid this, investors can choose to invest systematically over a period of time using a Systematic Transfer Plan, also known as STP. STP is an automated way of transferring a pre-defined amount of money regularly from one fund to another. This plan is usually chosen by those investors who wish to make a lumpsum investment but also want to avoid the risk of timing the market and leverage market volatility.
Or, it is chosen by those investors who have a lumpsum amount and wish to invest in equity-oriented mutual funds. The lumpsum amount is invested in debt funds and systematically transferred to equity funds when the market is ideal for investments in equity mutual funds.
Under SIP investments, an investor invests a fixed amount of money in a particular mutual fund scheme at regular intervals. The investment amount, tenure of the investment, and the periodicity of the investments is predetermined.
Under the SIP investment methodology, an investor can invest as low as Rs500. The periodicity of these investments can be daily, weekly, bi-weekly, monthly, quarterly, or annually. This builds a regular savings habit in the investor and also instils a sense of financial discipline.
Investors who invest via SIP also benefit from rupee cost averaging, which means that they can buy more units when the prices are low and vice versa. This helps them average out the cost incurred to purchase a single unit of a mutual fund scheme.
These are some of the benefits of investing in mutual funds through the lumpsum investment methodology:
Following are some pointers that will help you know the difference between SIP and lumpsum mode of investment:
Parameter |
Lumpsum |
SIP |
No. of investments |
Once |
Regular (fixed or variable) |
Tenure of investment |
Subject to your investment goals and market volatility |
Subject to your investment goals but somewhat immune to market conditions |
Cost of investment |
High (requires a significant one-time investment) |
Less (can invest amounts as low as Rs500) |
Average costs |
No benefit of rupee cost averaging |
SIPs enjoy the benefits of rupee cost averaging as mutual fund units are purchased at different market cycles |
You can even begin your lumpsum investment with a smaller amount and increase it over time as you become more comfortable with the procedure.
You can choose to go with the lumpsum investment methodology after considering aspects such as financial stability, current income, risk appetite, investment goals, and tenure. Happy investing!
*Returns on mutual fund investments are subject to market risks and may differ upon completion of investment tenure.
An investor education and awareness initiative by Franklin Templeton Mutual Fund
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.