How Mutual fund lump sum calculator is helpful

Lump sum investment, also referred to as one time investment, is investing your entire amount in one go. It is the simplest form of investments. Though Systematic Investment Plans (SIPs) have gained a lot of popularity in India, lump sum investments remain one of the most popular forms of investments. In this article, we will discuss about mutual fund lump sum investments and how to calculate its returns using the lumpsum calculator.

When do you invest in lump sum?

There are many instances when you prefer to invest in lump sum:-

The most important requirement for investing in lump sum is availability of sufficient investible funds. If you have an investible corpus, you may prefer to invest in lump sum

Salaried investors usually get their annual bonus once in a year. Since it is a relatively large sum, you may want to invest a portion of it or all of it, in lump sum.

From time to time, you may receive windfall cash-flows e.g. maturity proceed of fixed deposits, recurring deposits, life insurance policies, public provident funds, national savings certificates, sales proceeds from a property sales etc. You may want to invest these cash-flows in lump sum.

Lump sum investments may be preferred in investment products where risk is low. Most of the investments in debt mutual funds are in lump sum.

Investors may want to take advantage of deep market corrections by tactically investing in lump sum. By investing a relatively large sum at low prices, you can higher substantially higher absolute returns.

Deep corrections aside, there may sometimes be attractive one time investment opportunities e.g. corporate bond / Non Convertible Debenture (NCD) issues at attractive yields, Initial Public Offering (IPOs). Over the past few years, we have see lot of lump sum investments in IPOs purely for the purpose of getting listing gains. We must caution investors that you must always consider risk factors before committing a large sum of money and make informed decisions.

Return from lump sum investment

Return from your lump sum investment is essentially the profit you make and will depend on the mutual fund NAV at which you purchased units of your mutual fund scheme and the NAV at which you are redeeming or selling. Mutual fund NAV, in simplistic terms, is the price at which you buy or sell units of a mutual fund scheme. The difference between the sales proceeds and acquisition cost or investment is the absolute return of your investment, which can also be expressed in percentage terms. A more useful return measure for lump sum investment is Compounded Annual Growth Rate (CAGR). Compounded Annual Growth Rate return on investment that would be required for an investment to grow from its starting point to its ending point, considering that the profits were re-invested at the end of each calendar year throughout the investment tenure.

Mutual fund lump sum calculator

Mutual fund Lump Sum Calculator can tell you the point to point returns for lump sum investments in mutual fund schemes. Point to point return is returns for specific start and end dates; it is important for lump sum investments because as mentioned earlier, lump sum returns depend on the investment and redemption mutual fund NAV. You can use Lump Sum Calculator to try different start and end dates and see the results for different investment tenures. Your investment tenure will depend on your investment needs / financial goals, but Lump Sum Calculator can give you a sense of the returns for different investment tenures.