People know that investing is important, but they don’t know what their money or investments will look like after three or five or ten years. That’s why having calculators is important, and this is where SIP and lumpsum calculators come into the picture. These calculators don’t give any sort of investment advice, they don’t even guarantee any kind of future returns, they do what’s easy and simple – help people run their numbers and get an approximate idea of how much money they will be able to grow over time.
SIP and Lumpsum Basics
It’s important to understand the two types of investing before we dive into more about these calculators.
· SIP (Systematic Investment Plan): SIPs are a way of investing a fixed amount (of a value like, say, ₹2000 or ₹3000) at regular intervals (like every month or every quarter) into mutual funds and that adds up over time. SIPs remove the stress of trying to figure out when to invest.
· Lumpsum Investment: Lumpsum is the opposite of SIP. Instead of investing money bit by bit over the period, you take a significant lump sum amount of money (say ₹1 lakh, ₹5 lakhs) and invest that in the investment options (e.g., mutual funds), allow them to invest, and let that money grow with the market.
Which investment is superior?
Neither of the two investments is better, and the results will largely depend on the market conditions, investment horizon and timing of investment.
SIP Calculator
It is not simple to manually calculate a SIP's maturity amount. The SIP calculator will do the same calculations and present you with results quickly and without effort.
You just need to put in these:
· How much are you planning on investing every month (the investment amount)
· The rate of interest % per annum (say 10% / 12%)
· The duration (5 years, 10 years, 15 years)
When you enter all these values, the calculator will show you the maturity value of your investment.
Here’s a thought experiment: Let’s assume you put in ₹6000 each month for a period of 12 years, assuming a return of 10% per year, and the calculator will show you a maturity amount of ₹16.72 lakhs. The number it shows you is an estimate; it is not fixed or exactly what you will receive. The return that you will actually receive will change from your estimate as markets keep moving up and down. But it does give you a reasonable view of how your money is going to progress.
Lumpsum Calculator
The lumpsum calculator is made for one-time investments. You’ll have to enter these three things:
· Your investment amount, how much you want to invest
· For how many years
· What annual return do you expect
Based on these three things, it’ll give you the projected value of your money at the end of that period.
Let's say you have ₹5 lakh to invest at once for 20 years, and the return is 10% annually – then the calculator will show you a maturity value of ₹33.63 Lakhs. If we think of one major difference here, it is that in lump sum investments, the whole capital is working from day one, and that is what makes compounding more effective.
Why are these calculators valuable?
People often ask why we should be relying on these calculators, given the unpredictability of the markets, and the short answer is, they help with expectation setting.
· The various financial goals, buying a house, retirement and education, tend to be less distant when you can visualise the "gain" that is derived from the investment you are going to make
· Compounding looks complicated on paper, and these calculators help to visualise it
· Timelines can be easily comparable; it can be 5 years versus 10 years or 20 years
· You get an overview of a visual of how money can grow in different scenarios
· You can change the amount of investment, time – this allows for scenario testing
Particularly, a lumpsum calculator shows you how powerful patience can be. When people see what a one-off investment can look like after something like 15 - 20 years, it generally shifts people's thinking from a short-term mindset to something longer term.
Conclusion
The SIP and lumpsum calculators do make it simple to visualise your long-term financial goals and also see the compounding power and the advantages of staying committed to the investment.
Disclaimer: This article is published in association with Torus Digital and not created by TNM Editorial.