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Kolkata: As opposed to SIPs that consists of a series of investments over a period of time, lump sum investments are one-time investments where an individual makes a sizeable investment in a mutual fund scheme. If an individual thinks that he/she will take advantage of a dip in the market and stay invested for the long-term, lump sum investments are an ideal way of making long term wealth.
The time factor is of utmost importance. The longer one invests, the higher the gains. However, one must remember that there is no cost averaging in lump sum investments since the amount is not broken up into smaller amounts over a period of time across different market situations. Lump sum investments are ideal for those who can sense dip in the market and try to take advantage of it and invest in a downturn and wait for a number of years for the force of compounding to multiply the amount.
The returns generated by mutual funds are generally far superior than fixed return instruments. The use of a lump sum calculator demonstrates this effectively. Assume an individual has an amount of Rs 10 lakh to invest in mutual funds as a lump sum. It is obvious that the final corpus will depend on the rate of return by the mutual fund scheme. Let's also assume that the scheme generates 12% average return during the period of investment by this individual. One should keep in mind the word average -- no mutual fund can generate the same rate of return every year and it will rise and fall along with the markets, though not be the same rate.
Considering the individual does not withdraw the investment, or parts of it, during the entire time period, it will take a few months more than 20 years to reach Rs 1 crore. However, the time taken for the fund to generate the second crore will be far shorter. The calculator tells us that it will take only six years and a few months to reach from Rs 1 crore to Rs 2 crore. If someone has the patience to still keep the investment, it will take less than another four years to reach Rs 3 crore.
If the rate of return rises to 13% the entire time period changes. The first Rs 1 crore is reached in just a few months more than 19 years. The second crore is made in 24 years a few months and the third crore is made in 27 years and a few months.
(Disclaimer: (Disclaimer: This article is only meant to provide information. TV9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, precious metals, commodity, REITs, INVITs, any form of alternative investment instruments and crypto assets.))
