What is a Lumpsum Investment?
A lumpsum investment is a one-time investment of a large sum of money, as opposed to making smaller, regular contributions over time (like a SIP). This calculator helps you understand how your one-time investment will grow over time, accounting for compound interest and the effects of inflation.
When you invest a lumpsum amount, your entire principal starts earning returns from day one. This can be advantageous when markets are expected to grow, as you benefit from compounding on the full amount immediately.
Advantages
- • Full amount starts compounding immediately
- • No need to time multiple investments
- • Simpler to manage and track
- • Can benefit from market dips if timed well
Considerations
- • Higher risk if market drops after investment
- • Requires large capital upfront
- • No rupee cost averaging benefit
- • Timing can significantly impact returns
Why Consider Inflation?
Inflation erodes the purchasing power of your money over time. A return of 10% may sound impressive, but if inflation is 6%, your real return is only about 4%. This calculator shows you both the nominal (face value) and real (inflation-adjusted) value of your investment, helping you make more informed decisions.
Lumpsum Investment Formula
The growth of a lumpsum investment follows the compound interest formula:
A = P × (1 + r/n)^(n×t)
Where:
- A= Final amount (future value)
- P= Principal (initial investment)
- r= Annual interest rate (as decimal)
- n= Number of times interest compounds per year
- t= Time in years
Inflation-Adjusted Value Formula
Real Value = A ÷ (1 + i)^t
Where i is the inflation rate (as decimal) and t is time in years. This gives you the purchasing power of your future amount in today's terms.
Example Calculation
Given: ₹1,00,000 invested at 12% p.a. for 10 years, compounded yearly, with 6% inflation
Nominal Value = 1,00,000 × (1 + 0.12)^10
= 1,00,000 × 3.1058
= ₹3,10,585
Real Value = 3,10,585 ÷ (1 + 0.06)^10
= 3,10,585 ÷ 1.7908
= ₹1,73,428 (in today's purchasing power)