When we think of investment opportunities in India, there are a wide variety of products and diverse channels. From investing in physical assets like land, metal, and commodities to financial products like equity, bonds, insurance, derivatives and mutual funds. Depending on an investor’s investment goals and risk appetite, the market is quite diverse and creative in presenting numerous choices. Furthermore, if we look at Mutual Funds, which is the most popular segment in the current market, there are many variants to choose from. However, when it comes to investing in these funds, people often have a split opinion about making lumpsum investments or choosing SIPs.
While both investment methods have their benefits and considerations, it is critical to access them fundamentally. And that’s where tools like investment calculators prove to be a great asset for both seasoned and new investors. Let’s understand how a lumpsum calculator and that for SIP can help you make sound financial decisions.
What are lump sum investments?
Lump sum or one-time investments are a method of investing a fund only once, without any subsequent scheduled investments. Therefore, the future cash flow or return on this initial investment is calculated only for a singular transaction over the investment horizon. By using a lump sum calculator, you as an investor can compare the expected returns for different assets and funds. Usually, for a mutual fund, the one-time investment limit is higher than for a SIP. So you can project your future value by compounding the expected rate of return.
How does an SIP work?
Contrary to a one-time investment method, a SIP is designed on the principle of cascading or scheduled contributions. The investors buy into the fund at regular intervals which averages out the cost of ownership over the period. This means when the price is low, they get more units and vice versa. And so, valuing the expected returns for a SIP is slightly more computation. In simple terms, an SIP can be modelled as multiple lump-sum transactions in a cascading fashion. And each subsequent contribution is projected to a gradually sorted horizon. Using an online SIP Calculator can help investors compare the SIP returns for each potential mutual fund. This also makes it easier to evaluate the possible risk exposure and financial planning over the investment horizon.
From a risk assessment perspective, lump sum investments have a greater exposure to market volatility. This, in turn, also indicates the possibility of greater returns alongside the risk of significant losses. On the other hand, with SIP, due to the averaging effort over the investment period, the risk is dissipated over time.
Irrespective of the strategy and financial planning method, both these approaches require strategic research and risk assessment. Using reliable tools like the SIP and lumpsum calculators can be a great asset when comparing and evaluating opportunities. Moreover, you can customise and adjust various investment attributes based on your financial objectives and align them with your goals.
Santosh Kumar is a Professional SEO and Blogger, With the help of this blog he is trying to share top 10 lists, facts, entertainment news from India and all around the world.