Principal Amount
This is the initial seed capital you invest. In a lumpsum strategy, this entire amount is deployed at once. Unlike SIPs where the principal grows month-on-month, here the principal remains constant (unless you add top-ups), but its value grows.
Compound Interest
Often described as "interest on interest," this is the mechanism that accelerates wealth creation. In the first year, you earn interest on your principal. In the second year, you earn interest on your principal plus the first year's interest. Over long periods, this snowball effect is massive.
CAGR (Compound Annual Growth Rate)
Since market returns fluctuate (e.g., +20% one year, -5% the next), CAGR provides a smoothed-out annual average. It represents the steady rate at which your investment would have grown if it had grown at a constant rate. It is the standard metric for comparing mutual fund performance.
Maturity Value
The final corpus available to you at the end of the investment tenure. It equals Principal + Total Gains. Note that this is usually the pre-tax value; your actual take-home amount may be lower after Capital Gains Tax.
Lock-in Period
A mandatory holding period during which you cannot withdraw your funds. For example, Tax-Saving Fixed Deposits have a 5-year lock-in, and ELSS Mutual Funds have a 3-year lock-in. Open-ended mutual funds generally do not have a lock-in, but may have exit loads.
Inflation
The silent wealth killer. Inflation reduces the purchasing power of money over time. If your investment grows at 6% but inflation is also 6%, your real return is zero. Lumpsum investments in equity are preferred because they historically beat inflation by a wide margin.
Expense Ratio
A small percentage fee charged by mutual fund houses to manage your money. For a large lumpsum investment, even a 0.5% difference in expense ratio (Regular vs. Direct Plan) can result in a difference of lakhs in the final corpus over 15-20 years.
Capital Gains Tax (LTCG/STCG)
The tax you pay on the profit earned. For Equity, gains realized after 1 year are Long Term Capital Gains (LTCG) and are taxed at 12.5% (above ₹1.25 Lakh). Gains within 1 year are Short Term (STCG) and taxed at 20%.