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How a Lumpsum Calculator Works?

by Melanie Peterson

A mutual fund investor- new or existing, invests and remains invested with a basic objective- to attain or inch closer to their respective financial goals. Well, these goals can be of different kinds, based on the lifestyle, age, status of the investor. Some might invest with a short term goal of buying a luxury car or abroad trip and some with a long term goal of child education or buying a home or wedding or starting a business. Whatever the goal might be, the solution is only one- Investing. It takes time, patience, the right financial advice, but in the end of what might seem like a long road, it can be worth it when you would be able to use the corpus for a long awaited goal completion.

How a lumpsum calculator works

When we talk about investment of your hard earned savings here, mutual funds can be a great option to explore in the market. It offers convenience, hassle free online investing, and a variety of fund options for its investors. A simple but strategic way of making this mutual fund investment is through SIP or systematic investment plan or one time investing through the lumpsum method.

Now, in order to facilitate this process, online tools like lumpsum calculator is used to make investors more confident and ready for the investing journey. Let us find out more about it.

Lumpsum calculator and formula

The lumpsum calculator on any mutual fund website uses a specific method to compute the estimated return on investment. It is a compound interest formula with one of the variables being the number of times the interest is compounded in a year.

The formula is as follows:-

A=P (1+r/n)^nt

In the above, the variables are as follows:-

A = Estimated return

P = Present value

R = Rate of return

T = investment duration

N = number of compounding interest in a year

Using the above, one can calculate the mutual fund returns on lumpsum investments. For example – You have invested Rs 10 Lakhs for 5 years assuming 10% return – then it would be,

A= Rs 10,00,000 (1+10%)^5

And the result would be Rs 16,10,510

Here, we explained the technical aspect of how a lumpsum calculator arrives at the estimated corpus amount for a one-time investment in mutual funds. But, in reality, one does not have to go through this complex calculating. One can just use the tool online and plan their finances based on their goals. Lumpsum calculator is user friendly, easy to use, quick and removes the possibility of human errors that can happen in case of manual calculation.

Although it has been noticed that investors search for terms like SIP lumpsum calculator or lumpsum SIP calculator online, these tools are not relevant. They exist separately in the form of lumpsum or Sip calculator.

We tried to get an in depth understanding of lumpsum calculator and how it works, in this article. It is beneficial for investors setting foot in the mutual fundinvestment journey and helping them understand how it would work.

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