CAGR Calculator

What is CAGR?

CAGR (Compound Annual Growth Rate) is a measure of the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

CAGR vs. Absolute Return

While Absolute Return simply tells you how much you've gained or lost in total, CAGR tells you how much you've gained or lost per year on average. This is crucial for comparing different investments.

• Scenario A: You double your money in 1 year. Absolute Return: 100%. CAGR: 100%.
• Scenario B: You double your money in 10 years. Absolute Return: 100%. CAGR: 7.18%.

As you can see, knowing the CAGR gives you a much better picture of the investment's performance.

How to Calculate CAGR

The formula for CAGR is:

CAGR = ( (Ending Value / Beginning Value) ^ (1 / Number of Years) ) - 1

Where:

• Ending Value: The value of the investment at the end of the period.
• Beginning Value: The value of the investment at the start of the period.
• Number of Years: The time period of the investment in years.

Frequently Asked Questions (FAQs)

Q. What is a "good" CAGR?

A "good" CAGR depends on the investment's risk:

• Low-Risk (FD, PPF): A CAGR of 6-8% is standard and "good" for a safe investment.
• Medium-Risk (Index Fund, Mutual Fund): A long-term CAGR of 12-15% is considered very good.
• High-Risk (Individual Stocks, Crypto): Investors aim for a CAGR of 20%+, but this comes with high risk.

Q. What is the difference between CAGR and IRR?

This is a key financial concept:

• Use CAGR when you have a single, one-time investment (lumpsum) and want to find its annual return. (e.g., "I invested ₹1 Lakh in 2010, it is ₹5 Lakhs today").
• Use IRR (Internal Rate of Return) when you have *multiple* investments over time (like a SIP). (e.g., "I invested ₹5,000 *every month* for 10 years..."). Use our IRR Calculator for that.

Q. What are the limitations of CAGR?

CAGR's biggest limitation is that it ignores volatility. It assumes the investment grew in a perfectly smooth line. It only looks at the start and end values. It doesn't tell you about the "journey" (the ups and downs) in between, which is a measure of risk.