How the Lumpsum Calculator Works
A lumpsum investment is a one-time investment where you put in the entire amount at once, as opposed to spreading it over time (SIP). The power of lumpsum comes from the fact that your entire principal starts compounding from day one.
The Lumpsum Formula
FV = P × (1 + r)n
Where:
- P = Initial investment (principal)
- r = Expected annual return rate (as decimal)
- n = Number of years
- FV = Future value of your investment
Lumpsum vs SIP
- Lumpsum — The entire amount compounds from day one. Best when you have idle cash, receive a bonus, or believe the market is undervalued.
- SIP — Invests monthly, averaging out market volatility (rupee cost averaging). Best for salaried investors with regular income.
Historically, lumpsum has outperformed SIP about 65-70% of the time over 10+ year periods, because markets tend to go up over the long term. However, SIP provides psychological comfort during volatile periods.
Tax on Lumpsum Returns
- Equity Funds (STCG): Gains on units held < 1 year taxed at 20%
- Equity Funds (LTCG): Gains above ₹1.25 lakh on units held > 1 year taxed at 12.5%
- Debt Funds (post April 2023): All gains taxed at your income slab rate
Frequently Asked Questions
How are lumpsum returns calculated?
Lumpsum returns use the standard compound interest formula: FV = P × (1+r)^n. The entire principal compounds from day one, which is why lumpsum can outperform SIP in a consistently rising market.
When should I invest lumpsum vs SIP?
Invest lumpsum when you have idle cash (bonus, inheritance, matured FD) and the market isn't at extreme highs. Use SIP for your regular monthly savings. Many investors use a hybrid approach: invest a lumpsum and continue monthly SIPs.
What is a good expected return rate?
Historical long-term returns: Large-cap equity ~10-12%, Mid-cap ~12-15%, Small-cap ~14-18%, Hybrid ~8-12%, Debt ~6-8%. Use 12% as a reasonable estimate for diversified equity funds over 10+ years.
Is lumpsum risky?
Lumpsum carries more short-term timing risk than SIP. If you invest just before a market crash, your returns will be lower initially. However, over long periods (7+ years), this timing risk diminishes significantly. For shorter periods (1-3 years), consider debt funds or staggering the investment.
Can I withdraw a lumpsum investment anytime?
Open-ended mutual funds allow withdrawal anytime. However, some funds have exit loads (typically 1% if redeemed within 1 year). ELSS funds have a 3-year lock-in. Check the fund's exit load and tax implications before redeeming.
