CAGR Calculator

What is CAGR?

CAGR — Compound Annual Growth Rate — is the rate at which an investment would need to grow each year to go from its starting value to its ending value over a specified period, assuming compounding. It's the single number that answers: "What consistent annual return did this investment deliver?"

CAGR smooths out year-to-year volatility. A mutual fund might return 45% one year and −18% the next. Its CAGR over two years isn't the average of those two numbers — it's the geometric mean: the single annual return rate that gets you from start to end. For the example above: ₹1 lakh → ₹1.45 lakh → ₹1.19 lakh, CAGR = (1.19)^(1/2) − 1 = 9.1%/year, not 13.5%.

The formula

CAGR vs absolute return vs simple return

These three measures are often confused:

• Absolute return (also called "point-to-point return"): how much the investment grew in total, regardless of time. ₹1 lakh → ₹3.2 lakh = 220% absolute return. Useful only when comparing investments of equal duration.
• Simple annual return: absolute return ÷ years = 220% ÷ 10 = 22%/year. This is misleading because it ignores the compounding effect — you can't actually earn 22%/year linearly.
• CAGR: 12.33%/year in the same example. This is the correct annualised measure for comparing investments of different durations and sizes. It accounts for compounding.

When a mutual fund advertisement says "returned 18% since inception," they mean CAGR. When they say "total returns of 540%," they mean absolute return. Both can be true simultaneously — you need the time period to evaluate either.

The Rule of 72

A quick mental shortcut: divide 72 by the CAGR to find how many years it takes to double your money. At 12% CAGR, money doubles in 72 ÷ 12 = 6 years. At 7% (FD rate), it takes 72 ÷ 7 ≈ 10.3 years. At India's average inflation of ~6%, prices double in 72 ÷ 6 = 12 years. This is why keeping money in a savings account (3–4%) while inflation runs at 6% is a real loss — your money doubles in 18 years but prices double in 12.

Frequently Asked Questions

What's the difference between CAGR and XIRR?

CAGR assumes a single lump-sum investment and a single ending value. XIRR handles irregular cash flows — multiple investments at different dates and multiple redemptions. For a simple FD or a single mutual fund investment, CAGR is correct. For a SIP (monthly investments), CAGR is misleading because each instalment has a different time horizon. Use XIRR for SIPs. Most fund factsheets show CAGR on lump-sum performance; XIRR is what matters for your actual returns.

Why do mutual fund ads show 3-year, 5-year, and 10-year CAGR separately?

Because returns are period-dependent. A fund might show 6% 3-year CAGR (caught in a down market) but 14% 10-year CAGR (includes the recovery). SEBI mandates showing multiple time periods to prevent cherry-picking. When evaluating a fund, the 10-year CAGR is the most meaningful — it captures at least one full market cycle. Anything under 3 years is noise.

What CAGR should I expect from Indian equity?

The Nifty 50 has delivered approximately 13% CAGR since its inception in 1996 (price return, pre-tax). Total returns (including dividends) are slightly higher. However, this includes many periods of 0–5% returns stretched over 5–7 years, followed by strong recoveries. A realistic planning assumption for a diversified equity mutual fund is 10–12% CAGR over 15+ year horizons. For 5–7 year horizons, 8–10% is more appropriate given sequence-of-returns risk.

Can CAGR be negative?

Yes — if the ending value is less than the starting value, CAGR is negative. A stock that went from ₹500 to ₹200 over 5 years has a CAGR of (200/500)^(1/5) − 1 = −16.5%/year. CAGR is undefined if the starting value is zero or negative (you can't divide by zero or take roots of negatives in this context). These edge cases are why XIRR is used for complete financial models.