The financial landscape is a volatile one that changes rapidly every day. It brings a lot of uncertainty to the investors, especially when they want to make lumpsum investments instead of periodic ones. However, certain tools can help you prepare for the volatile markets and invest wisely, like the lumpsum calculator, offered by discount brokers and other financial entities.
If you are keen on making a lump-sum investment and want to understand the risk and return, this tool can help you. Find out all about this calculator in the article below.
What is a Lumpsum Calculator?
A lumpsum calculator is a digital tool that calculates the return on your lump-sum investment based on several factors. This calculator tool gives you the final return amount that you will get based on the period of investment, the expected rate of return and the investment amount.
Thus, you can get an idea of how much your investment would earn over time. You can adjust your investments accordingly to maximise the returns and meet your financial goals.
How Does the Lumpsum Calculator Work?
The lumpsum calculator for investment works on the basis of a mathematical formula using the compound interest theory. Based on the values that you feed into the calculator, you get the final amount, which is the total of your investment and return amount on mutual funds.
The calculator uses a formula mentioned below.
| FV = P* (1 + r/n) ^ (nt) |
Where,
FV = Future Value
P = Principal/original investment amount
R = Expected rate of return
t= Period of investment
N = Number of times interest is compounded yearly
Let us consider an example to understand how the lumpsum calculator works.
Suppose you want to make a lumpsum investment of ₹1,00,000 for 5 years. You are expecting a return of 10% pa and want to find out how much return your investment will earn at the end of the tenure. Here, we assume that the interest compounds annually.
Fv=1,00,000 (1 + 0.10/1) ^ (1*5)
= 1,00,000 (1.61051)
= ₹1,61,051
You will get a return of ₹1,61,0051 in your lumpsum investment after 10 years.
Benefits of a Lumpsum Calculator
Lumpsum calculator is a beneficial tool that helps you gauge the volatility of the market and make wise investment decisions. Some of the benefits of this tool are as follows:
- Plan Finances– With the help of this calculator tool, you can plan your future financial goals and invest accordingly. For example, if you require ₹50,00,000 after 10 years, you can use the lumpsum calculator to find out how much you should invest to meet your financial goals.
- Compare Investment Options- Using this tool, you can also compare various available investment options. For instance, you can compare two investment options that have similar rates of return with varying compounding or tenure.
- Risk Assessment- You can also assess the risk associated with lumpsum investments if you wish to spread your investment across multiple avenues. Thus, you can take calculated risks to maximise the returns.
Summary
The lumpsum calculator is a smart tool for investors that helps to understand the market volatility and invest accordingly. Since the calculator is based on a mathematical formula, it gives accurate answers, allowing you to make the right investment decisions.
The tool benefits in many ways, allowing you to assess the risk, plan your future finances and compare various investment options.
