Before we get started directly on how to use a lump sum calculator, we would like to introduce to the term lumpsum. While most of the reader out there must be well aware of what it is, maybe you are a newbie and would like to learn more about this financial term.
What is Lumpsum?
According to the definition, “A lump sum amount is defined as a single complete sum of money. A lump sum investment is of the entire amount at one go.”
You will say, you are making a lump sum investment when you are willing to invest the entire amount that is available with you in a certain type of investment such as a mutual fund. So, when you are doing a lump sum investment in a mutual fund it is called lump sum mutual fund investment, when you are doing a lump sum investment in SIP, it is called lump sum SIP investment.
Where you can do a Lump Sum Investment?
Technically there are two ways of lump sum investment, one way of investing the amount into the mutual funds, and others in by doing the investment through Systematic Investment Plan, which is SIP.
When you make a lump sum investment, the investment is undertaken by big players and investors, who further invest the amount in stocks, especially if you have invested for a long-term. They try to make the investment as profitable as possible, except in the case, there is high volatility, which is highly unlikely.
Understanding Compounding
You must understand compounding. You can say it is a financial superpower that is very important tools that you have at your disposal. It is compounding that is used by your investors to turn even the small amounts of money into huge savings. Sow a little amount of money and you have a money plant which you can use for a long-long time to use it for several things you always wanted to do.
So, compounding can turn small amounts into large sums over a long haul. So, while making a lump sum investment, it is also important that you calculate the impact of compounding on a lump sum at a given projected interest rate. It is also important, that you will never be ever fooled by your investors, as now you will have the ability to look into the future and see what happens to your lump sum.
Compounding#101
So, before we do the math or before we start learning how to use a Lump sum Mutual fund calculator or Lump sum SIP calculator, let’s start with the basic concept behind compound returns.
So, the basic idea behind compounding is when you reinvest the investment income and gains that you earn back into your investment account. It is notable that the reinvestment funds also earn a return going forward, the further into the future you go, the more of your total account balance represents money that you earned as the return.
Let’s understand it by an example:
If you have Rs100 and you have an opportunity to invest it at 10% for the long run. at the end of the year, your Rs 100 will generate a return of 10% that is now you have a sum of Rs110. The next year, however, you won’t just earn Rs10 on your investment but now, you will earn Rs11, as now you are investing Rs110 instead of Rs100. So, the interest of 10% that you are getting now is not just on the original Rs 100 but also on the Rs10 that you earned by the interest.
Similarly, in the third year of your investment, the earning of the 10% will be on Rs121 rather than on Rs100 and thus, you will have now more return on the investment. With time you will see your investment is exponentially growing. And your account balance is going up exponentially rather than showing a linear growth.
You will get more advantages when you put more money, but there are also, certain factors that can affect the growth of your investment. But this article is all about learning how to use the lump sum calculator.
So, how does a Lump Sum Calculator Work?
So, the calculator as the name suggests is to compute the estimated return you will get on the invested capital. For each investment we make, we must have in our mind a tentative figure of the amount that we will get in return. This helps you in planning your future well. So, “what kind of returns I will get and what can I expect from my investment” should be the first thing you must ask yourself.
Are returns subjective to some factors?
Yes, whenever you invest, you must know that anything can happen in the market. and returns are varied in nature over a long time. Hence it is very difficult to pinpoint a certain or exact corpus that you will earn on your investment with the variegating rate of returns.
So, while choosing a certain investment plan, you need to also see your specific needs, expectation from the market and other factors. Most importantly now you will need a lump sum calculator the most, isn’t it right?
Lump Sum Calculators and how to calculate on it?
There are many ready to use Lump Sum Calculators available online, that reveal the money you will get by undertaking several variables into consideration, like a type of SIP or lump sum along with the duration of investment and expected rate of return.
How to do the calculation on a lump sum?
To calculate compounding or return on the lump sum, you to insert the amount of money you are investing, at what rate of interest and for how many years. Once you have filled in the details in the calculator, it will automatically provide you with the amount that you can expect as a return.
Advance calculators, use ML, AI to understand various factors of market to also take into account the risk factors. Thus, some of the calculators have a setting which shows you estimated return with inflation.
Key Take-Aways
We hope you had an interesting time learning about how you can get better returns by just making the right choice of investment, the role of various factors and even how calculating return on the lump sum can help.
Finally, we would like to quickly wrap this financial- learning session by introducing you to some of the benefits of using an online lump sum calculator.
Firstly, it provides you a fairly accurate estimation on return,
Secondly, saves your valuable time, eliminating the errors and time you will need to do the calculation manually,
And third, since it is online, you get to access it anytime, anywhere making it very convenient for you.
