You can broadly divide mutual fund (MF) investments into lump sum and systematic investment plans (SIP). Both kinds of investments have their pros and cons.
Moreover, no set rules say if you begin your journey with a systematic investment plan (SIP), you cannot invest in a lump sum at any point. Instead, the deciding factors are how much you want to expose yourself to the market and how you want to move ahead in the investment journey.
Since a lump sum investment involves fewer transactions and its return is on the higher side, it is an investment tool for many investors. However, a lot depends on how well you know market cycles and investing limits.
If you are an investor who wants to invest large amounts in one go, then a lump sum investment plan can be a better option for you. However, if you are looking at smaller amounts of investments through monthly instalments, then a SIP makes sense.
A lump sum investment plan is a financial instrument where you invest a large sum of money all at once for a period instead of investing smaller payments every month.
The lump sum investment plan provides significant returns to those investing for a long-term period, such as five to seven years. Lump sum investment options can often yield benefits for specific goals like child education, retirement, or marriage funds.
Here are some benefits of a lump sum investment plan:
A lump sum investment plan is a one-time investment tool wherein you invest in a particular scheme or plan for a specified duration of time. It is typically suited for investors with a large amount of money readily available for investment.
When investing in a lump sum investment plan, you can decide the timing of the investment as per your risk-taking appetite.
A lump sum investment plan is suitable for investors looking to invest a large amount of money at one time with fewer payment cycles.
Lump sum investment plans can help you gain higher returns on the interest that you get on your investment. Investing a lump sum amount into debt or equity-oriented mutual funds can be fruitful.
A lump sum calculator is an excellent tool for making informed investment decisions regarding lump sum investment plans.
All you have to do is to enter your lump sum amount (in rupees), tenure (in years) and rate of interest (in percentage). The calculator will derive the future investment value in a click.For example, suppose you invest Rs 5 lakhs for 30 years at a return rate of interest of 15%. The future value of this investment after the tenure would be a staggering Rs 3,31,05,886, according to the lump sum calculator.
The lump sum investment calculator uses a specific formula to calculate the return on investment. Basically, it is a compounded interest formula wherein one of the variables is the number of times the interest compounds each year.
The formula is:
Estimated Total Return = Current Investment Amount [1 + (Annual Return Rate / Investment Duration in years)] ^ (Annual number of compounded interests Investment Duration in years)
While this might look like a complex equation, the lump sum calculator provides quick results. Let us take an example to understand it better.
For example, if an investor plans to invest Rs 36,000 over 10 years, with an expected return on the interest of 12%, the lump sum calculator would enable the investor to get an estimated return of Rs 75,811 and a total value of Rs 1,11,811.
Lump sum investment plans are a great investment option for investors to earn higher returns. However, it depends upon the available capital, investment willingness, purpose, risk-taking ability and investment period. You can start your investment with small amounts and increase it to more significant amounts as you build confidence and grasp the market dynamics.
Mutual Fund (MF) calculators provide estimates closest to the actual return figure. One must understand that mutual fund involves a certain amount of risk due to the volatile nature of the markets.
A Systematic Investment Plan (SIP) is a systematic investment approach, with smaller amounts invested in a planned manner each month. Conversely, a lump sum investment plan is a one-time investment plan wherein money is invested in a particular scheme for a specified duration.
One cannot compare SIP versus lump sum investment plans. Each option has a direct connection to an investor’s capital, investment willingness, purpose, and risk-taking ability. A Systematic Investment Plan (SIP) can be a good starter for avid investors and can bring financial discipline. In contrast, a lump sum investment plan requires a large amount of money to be invested in one go. Therefore, a combination of both could lead to a successful investment journey.
You can invest a significant amount, enough to be a lump sum as principal, in a mutual fund scheme of your choice.
While anyone can invest in a lump sum investment plan, the minimum amount required to invest in a mutual fund is around Rs 5000.
There is no upper limit on the lump sum investment plan.
The mutual fund investment process has shifted online. Many renowned companies, such as Jupiter Money, provide online investment solutions wherein one can invest by following a few simple steps.
