Lumpsum SIP calculator is a financial calculator used to calculate returns on lump sum and SIP plans. Lump sum and SIP are different types of investments; both are very popular in India. In lump sum you invest the entire amount in a mutual fund scheme in one go. In Systematic Investment Plan or SIP plans, you invest fixed amounts at regular intervals e.g. fortnightly, monthly, quarterly etc. in a mutual fund scheme.
How lumpsum calculator works?
To calculate the return of lumpsum investments, you can choose the lumpsum investment option in the lumpsum SIP calculator. The calculator 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. Your investment can grow exponentially over long investment tenures due to the power of compounding. In lump sum the entire investment earns returns from the day you made the investment. The mathematical formula used by lumpsum calculators is as:-
FV = I X (1 + r %) n
Where,
FV = Future Value of Investment
I = Investment Amount
r = Compounded Annual Growth Rate
n = investment tenure in years
For example, you invested Rs 5 lakhs in a fund and you assume that the fund will give 10% annualized returns. Corpus accumulated by you after 10 years will be = 5 X (1 + 10 %) 10 = Rs 12.97 lakhs.
How SIP plans calculator works?
SIP plans 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. The first SIP instalment (Rs 10,000) remains invested for 60 months, the second SIP for 59 months, the third one for 58 months and so on so forth. 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 SIP calculator will calculate the future values of all the 60 instalment of SIP plans. Then accumulated corpus will be the sum of the future values of all the SIP instalments.
Over the course of your investment journey you are likely to make investments through lumpsum or through SIP plans. While the SIP plans should be started from your regular savings, lumpsum investments are made from one time cash-flows e.g. annual bonus, maturity proceeds of other investments. Lumpsum SIP calculator is very useful tool to plan your investments for different financial goals e.g. buying a house, planning a foreign vacation, children’s higher education and marriage, retirement planning, wealth creation etc. You should consult with your financial advisor if you want to know more about lumpsum or SIP investments.