If you want to know how much you can earn from a lump sum investment option, then this article will help you know how to use a lumpsum calculator and base your decision on the results that come from it.
How to use a lump sum calculator?
The lump sum method is the most common method of investing, wherein you can invest a large sum of money in multiple options such as mutual funds, tax-saving ELSS mutual funds, FDs, life insurance, pension schemes, etc. and wait for higher returns in the future.
The formula to calculate the total returns is very cumbersome and requires a mathematical understanding of it. However, the lumpsum calculator is an online tool that is available for free on the internet and can be used by anyone with no prior knowledge.
Let’s see how you can use it and decide which option provides the maximum returns. Assume there are two investment options: an FD with a minimum lock-in period of 5 years and a 7% return, and a mutual fund with a lock-in period of 3 years and a 11% average return. You currently have ₹50,000 to invest and want to know how much you can earn from both options.
- Initial Investment: You have to enter the details of the initial investment, which is ₹50,000 in this case.
- Investment Period: Secondly, you have to enter the details of the investment period, which is 5 years in the case of FDs and 3 years in the case of mutual funds.
- Expected Return: In this field, you have to enter the interest rate in percentage terms, which is 7% in the case of FDs and 11% in mutual funds.
The lumpsum calculator will provide the return in a blink of an eye in terms of invested amount, wealth gained, and expected amount.
- Fixed Deposit: The FD will provide the expected total wealth amount of ₹70,127 after 5 years. You will earn the interest amount of ₹20,127 over and above the initial invested amount.
- Mutual Funds: The mutual fund will provide the expected total wealth amount of ₹68,381 after 3 years. You will earn the interest amount of ₹18,381 over and above the similar invested amount.
The results show that you can earn higher returns in the FDs as compared to the mutual funds. You can try out these combinations as many times as you want, know the returns you can expect after the investment period, and do your investment planning on that basis.
Benefits of a Lump Sum Calculator
- A lump sum calculator will help in the easy management of finances and in choosing from the different options.
- It helps in fulfilling the investment goals you have decided for your future.
- It is very simple and easy to use, and it provides the results in a split second.
- It also gives flexibility to change the inputs an unlimited number of times while knowing the target results.
- It saves time, which anyway requires completing a full mathematical calculation in a handy way.
- It provides accurate results because it is an automated tool free from human errors and biases.
Conclusion
Therefore, the benefits of using a lump sum calculator for investment planning are many, from ease of use to time savings to flexibility to helping the investors maximize their returns.