# How to use lumpsum calculator

Juliet D'cruz

Updated on:

Lumpsum calculator is used to calculate growth of lumpsum investments over specified investment tenures. Lumpsum or one-time investment is investing the entire amount in one go. It is the oldest mode of investing and continues to be very popular with investors.

How does a lumpsum calculator work?

Lumpsum calculators use the compounding principle to calculate returns or growth of investment. Compounding is profits earned on profits re-invested; if profits are re-invested, then you get higher profits and higher returns over long investment horizons. The compounding formula used by these calculators is as follows:-

FV = I X (1 + r %) n

Where,

FV = Future Value of Investment

I = Investment Amount

r = annualized return on investment

n = investment tenure in years

Suppose you invested Rs 5 lakhs in a mutual fund scheme. Let us assume that the scheme will give 10% annualized returns. Corpus accumulated by you after 10 years will be = 5 X (1 + 10 %) 10 = Rs 12.97 lakhs.

Some lumpsum calculators can also calculate the growth of lumpsum investment in a mutual fund scheme over certain investment tenure. The formula used by such calculators is as follows (NAV refers to net asset value of the scheme on respective dates):-

Corpus = Investment Amount X {scheme NAV (end date) ÷ scheme NAV (start date)}

Different types of returns with lumpsum calculators

• Absolute returns: Absolute return is the total growth in your investment expressed in percentage terms. Suppose you invested Rs 2 Lakhs in a mutual fund and after 2 years, the investment value is Rs 2.50 Lakhs – the absolute return will be 25%.
• Annualized returns: This is also known as Compounded Annual Growth Rate (CAGR). The effect of compounding (refer to the compounding formula above) is used in calculating CAGR. The formula of CAGR is as follows (you can get this formula by transposing the terms of the above equation):-

CAGR = {(Final Investment Value ÷ Initial Investment) (1 ÷ Tenure)} – 1