CAGR
InvestmentCompound Annual Growth Rate
The mean annual growth rate of an investment over a specified time period longer than one year, smoothing out volatility to show a steady rate of return.
Definition
Compound Annual Growth Rate (CAGR) is the rate at which an investment would have grown if it had grown at a steady annual rate during a specific period. It is a smoothed annualised figure that removes the effect of volatility, making it easy to compare the performance of different investments over time.
CAGR does not represent the actual year-by-year growth — an investment's value fluctuates each year. Instead, CAGR tells you what the equivalent constant growth rate would have been to get from the starting value to the ending value over the same number of years.
CAGR is widely used in India for comparing mutual fund returns, stock price growth, revenue growth of companies, and any metric that grows over multiple years.
Formula
CAGR = (Ending Value / Beginning Value)^(1/n) − 1
Where:
- Ending Value = Value at the end of the period
- Beginning Value = Value at the start of the period
- n = Number of years
Worked Example
You invested ₹1,00,000 in a mutual fund in 2018. By 2024 (6 years), the value has grown to ₹2,01,220.
CAGR = (2,01,220 / 1,00,000)^(1/6) − 1 = (2.0122)^(0.1667) − 1 ≈ 0.1235 = 12.35%
The fund delivered a CAGR of 12.35% per year. Use the CAGR calculator to compute this instantly for any values.
Key Things to Know
- CAGR vs XIRR: CAGR works only when there is one initial investment and one final value. For multiple cash flows (like a SIP), use XIRR.
- Point-to-point return: CAGR is a point-to-point measure. If you pick a particularly good or bad start/end date, the CAGR can be misleading. Rolling CAGR (calculated over many overlapping windows) gives a more robust picture.
- Mutual fund factsheets: Fund houses in India report 1-year, 3-year, 5-year, and 10-year CAGR figures on their factsheets and on platforms like Value Research and Morningstar.
- Not a guarantee: A past CAGR of 15% does not guarantee future returns. Equity CAGR can vary dramatically depending on the market cycle.
- Real CAGR: Subtract the inflation rate from CAGR to get the "real" or purchasing-power-adjusted return. If CAGR is 12% and inflation is 6%, the real CAGR is approximately 6%.