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Investments in mutual funds can be typically done in two ways: by starting a systematic investment plan (SIP) or investing a relatively larger amount of money all at once (lump sum). Investors choose their ways based on their financial situations and goals.
Either way, mutual funds being a long-term investment avenue require you to conduct thorough research and understand how your investments can help you achieve your financial goals. To do that, let us understand an important tool in depth- the lump sum investment calculator.
Understanding Lump Sum Investment Calculators
A lump sum investment calculator is a tool that helps you predict the returns based on your investment amount and tenure. Since investing in a lump sum amount is a significant commitment towards your goal, it is important that you understand how your investment would work while you plan for your future.
Using this tool is simple, you simply need to enter the initial investment amount, time period for investment (duration) and expected return rate. Depending on the value you enter, the tool will calculate your estimated returns.
Benefits of Using a Lumpsum Investment Calculator
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Accuracy in Estimating Future Returns
Lump sum investment calculators work on a mathematical formula which is devised based on the principle of future value. Thus, it gives you an accurate estimate of future returns.
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Helps in Financial Planning and Goal Setting
The tool predicts an accurate value, thus, it helps you in creating a robust financial plan. You can easily adjust the investment amount based on your expected returns.
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Assists in Comparing Different Investment Options
If you are not satisfied by the result (expected returns), you can research other investment options that offer higher returns. This helps you compare and make the right choice for you.
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Encourages Informed Investment Decisions
The information presented by the tool helps set realistic expectations from your investment. This also encourages you to make an informed decision.
Step-by-Step Guide to Using a Lumpsum Investment Calculator
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Entering Your Investment Amount
The first step is to enter your initial investment amount in the tool. Try to be as accurate as you can with this entry, as it directly affects the return amount. For example, ₹50,000.
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Setting the Investment Duration
The investment duration is the total period you wish to stay invested in the fund. Thus, set a realistic tenure of investment. Also note that the longer the duration of your investment, the higher the chances of earning a higher return. For example, 5 years.
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Choosing the Expected Rate of Return
It is important to conduct thorough research on your chosen mutual fund to set a realistic expected rate or return. You can do this by studying the fund’s performance history, market trends, market value, etc. For example, 15%.
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Considering Taxes and Inflation
Another important step before you predict a rate of return is to consider the taxation involved, that is, short-term and long-term capital gains tax. You also need to understand the inflation rate and changing market needs and economic conditions. Although you do not need to enter inflation in most of these calculators, consider these factors while entering the expected rate of return.
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Analyzing the Results
Based on your entries, the tool will give you an estimated return amount. It is important to understand that the tool only provides an approximate amount and it is recommended that you consult a professional advisor or tax consultant. In this example, the return predicted using the tool is ₹ 1,00,568.
Conclusion:
A lump sum investment calculator helps you predict the return amount, set investment goals, manage risks and expectations, and thus improve your financial planning. So before you buy mutual funds online, estimate the returns based on your budget and tenure and enjoy the returns in the future.
References:
- https://www.bajajfinserv.in/investments/lumpsum-calculator
- https://cleartax.in/s/lumpsum-calculator
- https://groww.in/calculators/lumpsum-calculator
- https://www.etmoney.com/tools-and-calculators/lumpsum-calculator
- https://www.icicibank.com/personal-banking/investments/mutual-funds/lumpsum-calculator
- https://www.venturasecurities.com/mutual-funds/tools/lumpsum-calculator/