Investment Summary
| Invested Amount | |
|---|---|
| Est. Returns | |
| Total Value |
Year-wise Profit
| Year | Amount |
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How Lumpsum Calculator Works?
Calculating the future value of a lump sum investment involves using the formula for compound interest. Here’s how you can calculate it:
Compound Interest Formula
[ \text{Future Value (FV)} = P \times \left(1 + \frac{r}{n}\right)^{n \times t} ]
Where:
- ( P ) = Principal amount (initial investment)
- ( r ) = Annual nominal interest rate (as a decimal, so 12% would be 0.12)
- ( n ) = Number of times that interest is compounded per unit year
- ( t ) = Time the money is invested for, in years
However, for simplicity, in many financial calculations, especially when dealing with yearly compounding (which is common in many scenarios), the formula is often simplified to:
[ \text{Future Value (FV)} = P \times (1 + r)^t ]
Steps to Calculate Lumpsum Amount:
- Identify the Principal Amount (P):
This is the initial amount of money you invest. - Determine the Expected Return Rate (r):
This is the annual rate of return you expect, expressed as a percentage (e.g., 12% return would be 0.12). - Determine the Investment Period (t):
This is the number of years you plan to keep the money invested. - Calculate the Future Value (FV):
Plug the values into the simplified formula ( FV = P \times (1 + r)^t ).
Example Calculation:
Suppose you invest ₹25,000 with an expected annual return rate of 12% for 10 years.
- Principal (P): ₹25,000
- Annual Return Rate (r): 12% or 0.12
- Time Period (t): 10 years
Using the formula:
[ FV = 25{,}000 \times (1 + 0.12)^{10} ]
Let’s break it down:
[ FV = 25{,}000 \times (1.12)^{10} ]
[ FV = 25{,}000 \times 3.10585 ]
[ FV \approx 77{,}646.25 ]
So, the future value of your investment would be approximately ₹77,646.25.
Understanding the Components:
- Principal Amount (P): The original amount invested remains the same.
- Returns: The returns are the difference between the Future Value and the Principal.
- Total Value: This is the total amount you’ll have after the investment period, including both the original investment and the interest earned.
Application:
This formula and process are widely applicable to any lump sum investment, whether it’s in stocks, bonds, fixed deposits, or mutual funds, assuming a consistent rate of return.