A lumpsum investment is a one-time, bulk investment made into a financial instrument like a mutual fund or stock. Unlike a SIP where you invest smaller amounts periodically, a lumpsum investment puts a significant amount of capital to work from day one.
This method is ideal for investors who have a substantial amount of money available, such as a bonus, inheritance, or savings, and wish to invest it all at once to maximize the time their money stays in the market.
The Lumpsum Calculation Formula
The future value of a lumpsum investment is calculated using the standard compound interest formula:
A = P (1 + r)^t
- A is the future value of the investment (Total Value).
- P is the principal investment amount (your one-time investment).
- r is the annual rate of interest (in decimal form, e.g., 12% = 0.12).
- t is the number of years the investment is held.
This formula shows how your initial capital grows exponentially over time, with returns generating their own returns.