Lumpsum Investment | All You Need to Know About Lumpsum Investment

Here’s all about lumpsum investment

A lumpsum investmentis a common method of investing money in financial instruments like life insurance, mutual funds, fixed deposit etc. If you invest a large sum of money in a financial instrument in one go, instead of multiple smaller payments it is called the lumpsum investment.

A large number of investors choose to invest in lump sum investments since there are fewer transactions involved, and suits their risk appetite.

Now to understand in which situation you might do a lumpsum investment – suppose for instance, you receive a nice bonus, and you are left with a handsome amount to invest after paying for all of your pre-planned obligations and expenditures. You can then invest the entire amount into a specific lump sum investment plan. 

● One-Time Investment 

Lump sum investment is a one-time investment in a particular scheme/plan for a specific duration. It is generally chosen by individuals who have a large amount of money handy for making investments. 

● Smarter Investment Management 

When someone wants to make a lump sum investment, they can manage the timing of their investment as per their risk appetite.

● Convenience 

Individuals who want to invest a big sum of money can often find it more convenient to make lump sum investments.

● Compounding Benefits 

The power of compounding can help you gain profits on the interest you receive on your investment for financial instruments such as fixed deposit

If you’ve opted to make a lump sum investment in a mutual fund, the next section can be quite useful.

How do lumpsum calculators help investors?

The lumpsum investment calculator is helpful for investors to estimate the returns that they will get on their investment.

So knowing how a lump sum investment calculator works is necessary for the person who is investing to to get maximum benefit from their investment. 

● It enables the investor to assess the potential returns he can get from the investment.

● It is user-friendly. So anyone can easily use this calculator with minimal effort.

● Calculators provide immediate results for free which saves time and effort for the investor.

● A lump sum calculator helps an investor plan his investment based on estimated returns they will get after the conclusion of the investment duration.

Advantages of Using a Lumpsum Calculator

A lumpsum investment calculator is conducive to use, and it has many advantages.

1. An investment calculator helps you get an idea about an investment plan with the assessment. However, it will not provide exact results in case of mutual funds because the outcome depends on market conditions.

2. It helps you plan for various investment goals based on your estimated returns.

3. It is a time-saving tool; as you know, technology makes everything easy and saves you the time and effort of making manual calculations.

4. When an individual understands the projected earnings, they should manage their ongoing finances and choose a suitable aim for their investments.

Formula to Calculate Returns on Lump Sum Investment

The investor must enter information such as the total original investment, estimated rate of return, and time duration into the lump sum calculator. The online calculator can instantly calculate estimated investment returns based on these data.

The calculator is based on the equation below 

                   X = Y(1+R/N)^NT

Here,

X = Estimated return  

Y= Present Value of invested amount  

R = Estimated Rate of interest (%)

T= Duration of the investment  

N = Number of times interest is compounded in a year

So using this formula, if you invest Rs. 2 lakh for 20 years and earn 12% p.a. return on your investment and the interest is assumed to be compounded annually, the future value of your investment will be approximately Rs. 19.29 lakh.

Conclusion

We have tried to cover the key aspect of lump sum investments and define lumpsum investment, including its benefits and how a lump sum calculator can make your job easy by saving you time and eliminating the need for making manual calculations.