Simplest way to calculate future returns on lump sum investments
Lumpsum refers to a one-time, single, or bulk payment made for a particular purpose. It typically involves
investing or contributing a significant amount of money in a single transaction, rather than making regular or
periodic payments. Lumpsum investments are often made in financial instruments such as mutual funds, stocks,
bonds, or retirement accounts.
In the context of investments, a lumpsum payment can be contrasted with periodic or systematic investments,
where smaller amounts are invested at regular intervals over a period of time.
Lumpsum investments are commonly associated with scenarios such as receiving an inheritance, selling an asset,
or making a large financial contribution. The key characteristic of a lumpsum payment is that it represents a
substantial sum of money paid at once, rather than being spread out over time.
Lumpsum:
Lumpsum = Principal Amount × (1 + Interest Rate/100)^ Duration
Estimated return = Lumpsum - Principal Amount
Suppose you have a lumpsum investment of ₹ 25,000 with an annual interest rate of 12 % compounded annually, and you plan to hold the investment for 10 years.
To calculate the Lumpsum:
| Principal Amount | = 25,000 |
| Interest | = 12 % |
| Time Period | = 10 Years |
| LumpSum | = Principal Amount × (1 + Interest Rate/100)^ Duration |
| = 25000 × (1 + 12/100)^ 10 | |
| = 25000 × (1 + 0.12)^ 10 | |
| = 25000 × (1.12)^ 10 | |
| = 25000 × 3.10584820834 | |
| = 25000 × 3.10584820834 | |
| = 77646.2052086 | |
| = 77646 |
Therefore, your Total Estimated Return (Lumpsum) at the end of a 10-year period shall be ₹ 77,646.
To calculate the Estimated return:
| Estimated return | = Lumpsum - Principal Amount |
| = 77646 - 25000 | |
| = 52646 |
Therefore, your Estimated Return is ₹ 52,646 and Total Estimated Return (Lumpsum) at the end of a 10-year period is ₹ 77,646.
