Mutual fund investments are broadly categorised into two categories – SIP and lumpsum. In case of the former, Systematic Investment Plan or SIP, one makes periodic investments over a tenure to develop a substantial corpus in the future. On the other hand, lumpsum investment entails an independent/one time investment through a single transaction by an investor. This can be done in equity or debt mutual funds – based on the risk capacity as well as financial goals of the individual in question. Hence, one can customise their mutual fund investments based on their nature as an investor, thus attempting to make the best out of it.
Lumpsum investment, carries a variety of benefits, here are a few:
- It offers investors the opportunity to take advantage of the power of compounding, which means that their invested sum of money can multiply over a long period of time, given they are patient and believe in financial discipline.
- Here, one can manage the timing of their investment based on their risk appetite.
- It offers convenience for investors who have a large sum of money ready to be invested in one go.
- Lumpsum investing is also ideal for those investors who want to invest for a long tenure such as 10-15 years, in order to build a good financial corpus.
After having understood the basic concept of lumpsum investing, let us also take a look at the financial tool that helps to make it easier and more viable. It is called as a lumpsum calculator – a freely available online tool that helps investors make an estimate of their returns on the lumpsum investment. One has to fill in the details asked for, then the calculation gives an approximation in seconds for the ease of the investor.
Usually, the details asked by the mutual fund lumpsum calculator are –
- Quantum of the investment
- Tenure of the investment
- Estimated return of the investment
Based on these basic details, an estimation of the future corpus is made that helps the investor in informed financial planning.
Suppose, you invest an amount of Rs 1 lakh in a chosen mutual fund scheme over a period of 20 years. If the rate of return is assumed to be 12% p.a., your expected corpus in the future would be Rs 9,64,630. This calculation was done in seconds using the mutual fund lumpsum calculator online. Once you know your amount to be invested and the tenure, this tool helps you in making an informed decision.
With the above example, we can not only understand the power of compounding through mutual fund investments, but also how with patient and long term investing, one can reach their financial goals or create an emergency corpus that can help in times of personal exigencies. Please note that the tool can only give you an approximate or estimated numbers as mutual funds are subject to market risks and they do not give assured or fixed returns.
The gist of this read was based on lumpsum investing, lumpsum calculator and how both complement each other to give investors the ease of investing in mutual funds.