Mutual fund investment serves as a great investment option for investors. With diversification across various stocks, mutual funds reduce volatility and offer opportunities for exponential returns. To calculate returns, investors can opt for a mutual fund calculator that can provide accurate results. By inputting various details like the expected rate of return, mutual fund type, and total amount of investment, the total returns a mutual fund investment can deliver can be ascertained. However, users have to select between lumpsum investments and SIPs. Let’s explore their meanings:
- Lumpsum Mutual fund investment:
Mutual fund investment in lumpsum involves a single amount that investors invest according to their preferences. After selecting the right mutual fund investment scheme, investors can make a lumpsum investment. The mutual fund units are bought for the lumpsum value usually at the beginning of the year helping investors to track their investments.
- Systematic investment plan or SIP:
A system investment plan involves investment of a fixed sum at regular intervals like monthly or quarterly in stocks, ETFs, and various other securities that investors deem fit. Instead of a single amount every year, investors can opt for investment at fixed intervals usually on a specific date.
Return calculation under lumpsum mutual fund investment:
Returns from lumpsum investment into mutual fund schemes are calculated on a compound annual growth rate or CAGR basis. The amount invested is compounded based on the actual returns in a financial year. This amount plus the returns is compounded further in the next year along with a second lump investment in the following year. This makes return and investment calculation easier and hassle-free.
Return calculation under SIPs
Investors generally opt for a SIP calculator to calculate the right sip amount for investment. The Calculator even provided information about the total returns SIP investments can generate after the end of a significant period like 5 – 10 years. The returns from SIP investment are calculated on the Extended Internal Rate of Return or XIRR basis. Since an investor invests a fixed sum at regular intervals, every amount invested will deliver different returns. To make the calculations easier, the sip calculator illustrates the rate of return from the sip investments on an annualized basis.
Difference between mutual fund and SIP investment:
A lumpsum investment into mutual funds is different from the SIPs. Moreover, the total returns generated after the end of a period say 10 years from investment in Mutual Funds and SIPs will be different.
Mutual fund vs SIP: which is better?
Both lumpsum investments into mutual funds and SIPs are known for their different benefits. With lumpsum investment investors do not have to worry about market volatility. They do not have to track the market movement and can invest a fixed sum every year in a lumpsum. The return calculation becomes streamlined and straightforward as well.
SIPs on the other hand deliver protection from changing market sentiments, stock performance, and various other factors. Moreover, beginner investors with low capital outlay can invest in smaller amounts at regular intervals.
Selection between mutual fund investment in a lumpsum and SIPs depends on the income level, financial goals, and preferences of the investors. While returns from SIPs are calculated on an XIRR basis, lumpsum mutual fund investment calculates returns on a CAGR basis. Investors can select between two or opt for both for diversified investments.