When you invest in a mutual fund through lumpsum method, it means a single, bulk amount has been invested into a mutual fund scheme in one go. The user must enter the investment amount, duration, and expected return rate to get the estimated future value of the investment. The calculation is based on the following formula:Future Value = Principal * (1 + r/100)^n where:
r = Rate of return
For example, if you have invested a lumpsum amount of ₹50,000 in a mutual fund scheme for three years and have estimated the rate of return at 8% per annum, the future value of your investment is ₹62,986
Both are great tools of investment for all types of investors. If you have a surplus and wish to invest the amount in a well-researched fund then lumpsum tool is a great idea, it allows you to pool your money immediately. Another method is SIP which is extremely useful for investors with limited resources. It allows you to invest small sums of money at pre-decided intervals in a chosen mutual fund. The greatest benefit of investing via SIP is that it builds wealth in the long, gives you the flexibility to choose the amount you wish to invest and your chosen timeline.
Another benefit of SIP investment is that you can stop it at any given moment or increase the amount if you have a surplus. An SIP investment works as a reverse EMI option where you have the flexibility to invest a portion of your income into your chosen fund and cultivate a disciplined manner of investing.
Suppose you wish to start saving for your child’s higher education and do not have a surplus amount to start with. This is where an SIP comes in, it allows you to invest a nominal amount in one or many mutual funds so that you do not miss out on the opportunity of saving and investing for your child’s future.
Investors can opt for both tools. You can start an SIP and place lumpsum orders on certain funds whenever you have a surplus of funds so that you can achieve your goals faster and more efficiently.