A lump sum investment is a way to invest in mutual funds, where you invest an enormous sum at once. You can invest in a lump sum when you have a large amount of money, receive an incentive or get any cash at once. But when investing lump sums, you must be careful about market timing. However, some mutual funds are suitable for investment in lump sums. Diversification of the portfolio and a better return in the long term can be achieved through careful selection of suitable mutual funds for lump sum investments.
What is Lump Sump Investments?
A lump sum investment in a mutual fund is paid in one transaction to buy a unit of a mutual fund scheme. Instead of making these investments regularly, they are made one time. Individuals who wish to increase their cash can choose a lump sum mutual fund investment. Generally, this type of investment is relatively easy to monitor, and returns are more favourable.
In the long run, lump sum investments in mutual funds can generate high returns. For individuals with a long-term investment horizon, this is the perfect solution. The value of lump sum investments will significantly increase when the market grows. For a lump sum investment, one needs to know the type of return, which is as follows.
- Absolute return
- Total return
- Annualised return
- Point-to-point return
- Trailing return
- Rolling return
To maximise the benefits of mutual fund investments, investors must understand all these types of returns.
What is a Lump Sum Calculator?
A lump sump calculator presents the estimated returns for the whole investment period. Use this calculator to calculate your investment returns for 1-year, 3-year and 5-year. It is highly convenient and easy to use. This calculator can be used with relative ease by a layperson. It provides a reasonable estimate of the actual situation. The lump sum calculator provides investors with a more accurate way of planning their mutual fund investments.
You should note that mutual fund investments have market risks and cannot be expected with exact accuracy. Mutual fund investors can use this calculator to estimate the expected returns of their investments.
How to Calculate Lump Sump Investing Returns?
The market performance of mutual funds determines the value of a lump sum investment. A simple formula is used to estimate lump sum returns for calculator investments. The formula is as follows:
A = P (1 + r ÷ n) ^ nt
where;
- A is the estimated return
- P is the current value of the invested amounts
- R is the expected rate of return
- t is the overall duration of investment
- n is the number of times the interest is compounded within a year
Tips to Invest in Lump Sump
Follow the below tips for successful lump sump investments.
- Keep an eye on the timing of the market
The timing of the market for any long-term investment should be considered. If the market sectors are in a downturn but have growth potential, it is advisable to make investments. In this case, the lumpum strategy is more likely to deliver higher returns. However, you could lose money if you invest too much when the markets are on a downward trend.
- Consider investing for an extended period
Individuals who are invested for a more extended period, preferably ten years or more, may benefit from lumpsum investments. Suppose you’re putting a lot of money into equity funds. The returns will fluctuate with the market. The risk of loss decreases if the investment is held for a longer period, increasing the chance that it will generate better returns. The longer you’re invested, the better it will be for you.
Benefits of Lump Sump Investment
The following are the advantages of lump sum investments.
- Bulk Investment
The bulk investment option allows individuals to invest a considerable amount of money. The investment value increases exponentially when the market moves up.
- Convenience
It is advisable to use the lump sum approach for those having a large amount of money available for investment. In this case, the individual is not obliged to make small investments based on a fixed date.
- Chance of higher returns
If an investor invests for the long term, paying close attention to market fluctuations is vital. A person may make lump sum investments if the market is low, but there are signs of growth potential. Under this scenario, the investor will likely receive higher returns by lump sum.
Conclusion
A lump sum investment in mutual funds can be considered for investors with a high level of risk tolerance and sufficient information about the market. However, individuals must keep a close eye on market fluctuations. Choose an SIP mode for investing in mutual funds if you are new to the investment world. However, lumpsum investments may be your choice if you’re an experienced investor and know which mutual funds to invest in. Check out Kotak Securities for mtf or Mutual Fund investment now. It is among the most safe and secure trading and investment app.