| lumpsum calculator | 60,500 |
| lumpsum sip calculator | 14,800 |
| mutual fund lumpsum calculator | 2,900 |
What is the difference between lumpsum and SIP?
Lumpsum investment, also known as one-time investments, refers to investing your entire amount in one go. It is one of the most popular forms of investment in India. Systematic Investment Plan or SIP, on the other hand, is a mutual fund facility through which you can invest fixed amounts at regular intervals e.g. fortnightly, monthly, quarterly etc in a mutual fund scheme. Both lumpsum and SIP investments are popular with retail investors.
Lumpsum versus SIP calculators
Lumpsum and SIP are different types of investments. One should not compare the two. Lumpsum investments are subject to availability of sufficient funds to make a one-time investment. In SIPs, you invest relatively small amounts at fixed investments (e.g. monthly) from your regular savings. Since lumpsum and SIP are different types of investments, we have different calculators for lumpsum and SIP investments. In lumpsum the entire investment earns returns from the day you made the investment. In SIPs, each SIP instalment is invested for different tenures e.g. in a 10 year monthly SIP, the first instalment is invested for 120 months, the second instalment is invested for 119 months, the third instalment is invested for 118 months and so on so forth.. However, both lumpsum & SIP calculator use the compounding effect.
Compounding effect
In mutual funds (growth option), the profits made by the scheme are re-invested in the scheme, just like how interest accrued is added to the principal in compound interest. Essentially, you earn profit on profits by re-investing the profits. Over long investment horizons, the re-invested profits can be much larger than your initial investment. Your investment can grow exponentially over long investment tenures due to the power of compounding.
How lumpsum calculator works?
Lumpsum calculators use the compounding principle to calculate returns or growth of investment. Compounding is profits earned on profits re-invested; if profits are re-invested, then you get higher profits and higher returns over long investment horizons. The compounding formula used by mutual fund lumpsum calculator is as follows (you can get this formula by transposing the terms of the CAGR equation):-
FV = I X (1 + r %) n
Where,
FV = Future Value of Investment
I = Investment Amount
r = CAGR
n = investment tenure in years
Suppose you invested Rs 5 lakhs in mutual fund schemes. Let us assume that the scheme will give 10% annualized returns. Corpus accumulated by you after 10 years will be = 5 X (1 + 10 %) 10 = 12.97 lakhs.
How SIP Calculator works?
A Systematic Investment Plan can be thought of as a series of lumpsum investments. So if you are doing monthly SIP of Rs 10,000 for five years, you can think of it as 60 lumpsum investments of Rs 10,000 each. We can use the above lumpsum calculator to calculate the future value of each SIP instalment, assuming 10% annualized returns. Please note that we are dividing the annualized returns by 12, because our investment tenure is in months now.
- FV (1st SIP instalment) = I0,000 X (1 + (10% ÷ 12) 60 = 16,453
- FV (2nd SIP instalment) = I0,000 X (1 + (10% ÷ 12) 59 = 16,317
- FV (3rd SIP instalment) = I0,000 X (1 + (10% ÷ 12) 58 = 16,182
In this way, the mutual fund SIP calculator will calculate the future values of all the 60 SIP instalments. Then accumulated corpus will be the sum of the future values of all the SIP instalments.
