What is CAGR and how is it calculated?

Compound Annual Growth Rate (CAGR) represents the mean annual growth rate of an investment over a specific time period exceeding one year. The formula is: CAGR = (Final Value / Beginning Value)^(1 / Number of Years) - 1.

What is the difference between CAGR and Absolute Return?

Absolute return calculates total percentage change without considering how many years it took. In contrast, CAGR factors in the time period and annual compounding, providing an annualized growth rate that allows fair comparison across different asset horizons.

When should I use CAGR instead of XIRR?

Use CAGR for single point-in-time lump-sum investments (one entry value and one exit value). If you make periodic investments or withdrawals over time (like a SIP or mutual fund STP), XIRR is the more accurate metric.

What is a good CAGR for investments in India?

A good CAGR typically beats prevailing consumer price inflation (usually 5-6%) by 4-8%. Historically, broad Indian equity indices (Nifty 50) have delivered 12-14% CAGR over 10+ year horizons, while debt funds and FDs deliver 6-8%.

CAGR Calculator Online: Compound Annual Growth Rate Formula & Chart

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CAGR Calculator Online

Calculate the Compound Annual Growth Rate of your mutual funds, equity portfolios, and real estate investments with annual compounding graphs.

Investment Inputs

Beginning Investment (₹) ₹1,00,000

₹

Maturity / Final Value (₹) ₹1,95,000

₹

Investment Period 5 Years

Growth Analysis Live Computed

Compound Annual Growth Rate

14.29%

Annualized Compounded Return

Absolute Return

95.00%

Net Profit / Gain

₹95,000

Initial Capital

₹1,00,000

Wealth Multiplier

1.95x

Year	Beginning Balance	Annual Gain	Ending Balance

How to Calculate CAGR: Formula and Example

Compound Annual Growth Rate (CAGR) measures the geometric progression ratio of an investment over multiple periods. Unlike standard average percentage gains, CAGR eliminates the distorting effects of market volatility by calculating the steady rate at which an asset would have grown had it compounded smoothly every year.

CAGR = [ (Final Value / Initial Value) ^ (1 / n) ] – 1

Where: Final Value = Maturity amount, Initial Value = Principal invested, n = Number of elapsed years

Practical Example

Suppose you invested ₹1,00,000 in an equity mutual fund on January 1, 2021. By January 1, 2026 (a 5-year span), your fund appreciated to ₹1,95,000:

Divide the final value by the initial value: 1,95,000 / 1,00,000 = 1.95
Raise 1.95 to the power of 1/5 (0.2): 1.95 ^ 0.2 = 1.1429
Subtract 1: 1.1429 - 1 = 0.1429 or 14.29% CAGR

CAGR vs. Absolute Return vs. XIRR

Selecting the wrong return metric can misrepresent financial performance. The table below outlines when each calculation applies:

Metric	Best Used For	Factors In Time?	Handles Multiple Cashflows?
CAGR	Lump-sum investments (mutual funds, property, stocks)	Yes (Annualized)	No (Single Start & End only)
Absolute Return	Short-term horizons (< 1 year) or simple total gain	No	No
XIRR	SIPs, SWPs, recurring deposits, irregular contributions	Yes (Date-weighted)	Yes

Frequently Asked Questions (FAQ)

What is a good CAGR for Indian investments?

Historically, benchmark equity indices like the Nifty 50 and S&P BSE Sensex have generated 12% to 14% CAGR over 10+ year timeframes. High-grade debt instruments and Fixed Deposits generally range between 6.5% and 7.5%, while gold averages 8% to 10%. A strong target CAGR should reliably exceed domestic inflation by at least 4% to 6%.

Can CAGR be negative?

Yes. If your investment’s final value is lower than your initial investment, the CAGR will be negative, indicating an annualized loss rate across the holding period.

Can I use CAGR for SIP calculations?

No. CAGR assumes that the entire lump sum was invested on day one. For monthly or quarterly Systematic Investment Plans (SIPs), use an XIRR calculator because each monthly tranche compounds for a different duration.

What are the key limitations of CAGR?

CAGR assumes smooth, linear growth every year. It obscures interim drawdown risk, market crashes, and volatility. An asset that drops 40% in year one and surges 80% in year two might have the same CAGR as a steady asset, but carrying significantly higher risk.

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