CAGR (Compound Annual Growth Rate) Calculator
Calculate the compound annual growth rate of an investment between its starting and ending value over a number of years.
CAGR smooths returns into a single annual rate; it ignores interim volatility.
What Is CAGR
CAGR stands for Compound Annual Growth Rate. It is the smooth, constant annual rate at which an investment would have grown to go from its starting value to its ending value over a number of years, assuming the gains were reinvested each year.
CAGR is one of the most useful ways to compare investments in India, whether you are looking at mutual funds, stocks, gold or real estate. Unlike a simple total return, CAGR expresses growth on a per-year basis, so you can fairly compare an investment held for 3 years with one held for 7 years. A CAGR Calculator does this instantly from just three inputs: the beginning value, the ending value and the time period.
CAGR Formula and How It Works
The CAGR formula is:
- CAGR = (End Value / Begin Value)(1 / years) − 1
Where:
- Begin Value = the amount you invested at the start.
- End Value = the value of the investment at the end.
- years = the holding period in years.
The result is usually expressed as a percentage. The big difference between CAGR and absolute return is that absolute return simply tells you the total percentage gain over the whole period, while CAGR converts it into a yearly rate.
One key limitation is that CAGR ignores interim volatility. It assumes a steady year-on-year climb even if the investment actually fell sharply in some years and rose in others. It only looks at the start and end points, not the bumpy journey in between.
Worked Example
Suppose you invested ₹1,00,000 and it grew to ₹2,00,000 in 5 years.
- CAGR = (2,00,000 / 1,00,000)(1/5) − 1
- CAGR = (2)0.2 − 1
- CAGR = 1.1487 − 1 = 0.1487, that is 14.87% per year.
Note that the absolute return here is 100%, since the money doubled. But on a yearly basis the investment grew at only 14.87% CAGR. This shows why CAGR is the better number for comparing investments held for different durations.
When to Use CAGR
Use CAGR when you want a single, comparable annual growth figure for any investment that compounds over time, such as equity mutual funds, index funds, stocks, gold or property. It is especially handy for comparing two investments held for different periods on a level footing.
However, CAGR works best for lumpsum investments with a single inflow and a single outflow. If you invest through a SIP or make multiple deposits and withdrawals at different dates, XIRR is the more accurate measure because it accounts for the timing of each cash flow. Remember too that past CAGR does not guarantee future returns, so treat it as a historical comparison tool rather than a promise.
Frequently Asked Questions
CAGR equals (End Value divided by Begin Value) raised to the power of (1 divided by the number of years), minus 1. The result is the constant annual growth rate, usually shown as a percentage.
Absolute return is the total percentage gain over the whole period, while CAGR converts that into a per-year rate. For example, doubling your money in 5 years is a 100% absolute return but only a 14.87% CAGR.
No. CAGR only looks at the start and end values and assumes smooth, steady growth. It ignores the interim volatility, so it does not reflect how bumpy the actual journey was.
Use XIRR when you have multiple cash flows on different dates, such as SIP instalments or staggered withdrawals. CAGR is best for a single lumpsum investment with one entry and one exit.
Yes. If the ending value is lower than the beginning value, the CAGR will be negative, indicating that the investment lost value at that average annual rate over the period.
Generally a higher CAGR means stronger growth, but it should be viewed alongside risk and volatility. A high CAGR from a very volatile asset may carry more risk than a slightly lower but steadier return.