Benefits of Lumpsum Investment Plan
A lump sum investment plan is a way of investing in mutual funds where one needs to deposit a single large amount in one go. Several investors prefer this method of investing as it comes with added benefits. Along with all the benefits of lump sum investment, we will walk you through other important facts about this investment method in this blog.
What Are the Benefits of Lump Sum Investment Plans?
Have a glance at the below-listed key benefits of lump sum investment plans when it comes to mutual funds.
- Higher Returns
Investing the entire amount at once in a lump sum investment plan offers the potential for higher returns. In case the market performs well, one opting for a lump sum investment will get higher returns than others.
- One-Time Payment
While opting for a lump sum investment, you will have to make only a one-time payment. This approach eliminates the need for constant monitoring or tracking of funds to make small investments on predetermined dates. It is particularly ideal for individuals with stable and secure monthly incomes.
- Convenience
Lump sum investment options are best for those who do not want to take any stress from managing multiple smaller investments. By choosing this method of investment, you can make a single large amount of investment which is more convenient and easy for such investors.
- Compounding Benefits
By reinvesting your returns into your lump sum investment, you can increase the potential for generating higher income. The compounding effect of this plan enables your investment to grow over time, as both the initial investment and the accumulated returns continue to earn returns themselves.
How to Invest a Lump Sum Amount in Mutual Funds?
In the below section, you will get a comprehensive idea of how you can make a lump sum investment in mutual funds.
Step 1: Open an account on an investment platform.
Step 2: Submit all the necessary documents and complete the KYC verification process.
Step 3: Select a mutual fund as per your financial goals.
Step 4: Choose the ‘One-time or Lump Sum’ investment option.
Step 5: Specify the amount you wish to invest in your mutual fund.
Step 6: Click on the ‘Invest’ option to successfully make your lump sum investment in mutual funds.
The investment amount will be instantly debited from your given bank account. Before opting for the lump sum plan, it is in your best interest to estimate the total earned profits on the interest generated by your investment. This can be done either by manually calculating the returns using a formula or by utilising a lump sum calculator.
What Is the Standard Lump Sum Calculating Formula?
Below is the formula which you can use for manually calculating the returns on your lump sum investment:
A = P (1 + r ÷ n) ^ nt
Here,
- A denotes the estimated return
- P denotes the invested amount’s present value
- R denotes the estimated rate of return
- T denotes the total investment duration
- N denotes the number of times the interest is compounded annually
An example: Suppose you are planning to invest a lump sum amount of ₹70,000 for 9 consecutive years. The expected return rate is 12% per year. Now let us calculate the return you will earn from this investment, using the above-stated formula:
A = ₹[70,000 (1 + 0.12 ÷ 1) ^ 1×9] = ₹1,24,116.
How to Use Online Lump Sum Calculators?
While manual calculations are an option when it comes to determining returns, it comes with the risk of human errors. Online lump-sum calculators are a better alternative as they are easy to use and provide quick and accurate results.
Henceforth, look into the following step-by-step guidelines on how you can use such a calculator with minimal inputs.
Step 1: Navigate to an online lumpsum investment calculator.
Step 2: Use the slider or enter the total investment amount.
Step 3: Set the expected rate of return (p.a.).
Step 4: Enter the period of your investment plan.
The total value and estimated returns will reflect automatically within a few seconds on your screen.
What Are the Factors You Must Consider Before Choosing a Lump Sum Investment Plan?
Now that you know about what is lump sum investment and its benefits, you can proceed with this investment approach. However, before doing so, it is crucial to consider all the important factors listed below.
- Investment goals
- Experience of the fund manager
- Risk profile
- A direct or regular plan
- Past performance of the scheme
- Tax implications
- Exit load
- Expense ratio
The Bottom Line
A lump sum investment is most suitable for investors with a high-risk tolerance and adequate market knowledge. Despite the numerous benefits of lump sum investment, individuals opting for this approach are advised to consistently monitor market fluctuations. By staying informed about the market trends and reassessing your portfolio, you can significantly amplify its benefits.