Compute annualized growth for investments, business metrics, and portfolio performance.
Formula: CAGR = (Ending Value / Beginning Value)^(1 / Years) - 1
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Absolute return tells you the total percentage gain on your investment regardless of time — if you invested ₹1 lakh and got back ₹1.8 lakh, your absolute return is 80%. CAGR, however, annualises that return to account for the time period. If those 80% returns came over 5 years, the CAGR is about 12.47%. CAGR provides a far more useful comparison between investments held for different durations, making it the standard metric in the Indian mutual fund industry.
CAGR works perfectly for lump-sum investments with a single entry and exit point. But if you invest through SIPs or make multiple additions and withdrawals, CAGR becomes misleading because it ignores the timing of each cash flow. In such cases, use XIRR (Extended Internal Rate of Return), which accounts for the exact dates and amounts of every transaction. For your SIP portfolio, XIRR gives you the true annualised return; for a one-time investment in a stock, CAGR is the right choice.
When comparing mutual funds, look at CAGR over 3, 5, and 10-year horizons rather than 1-year returns, which can be heavily influenced by short-term market conditions. A large-cap equity fund delivering a CAGR of 12-14% over 10 years is considered a solid performer in India. Always compare a fund's CAGR against its benchmark index — a fund returning 13% CAGR when the Nifty 50 returned 14% over the same period has actually underperformed despite looking impressive in isolation.
The nominal CAGR of your investment does not reflect your actual increase in purchasing power. To calculate real CAGR, use the formula: Real CAGR = [(1 + Nominal CAGR) / (1 + Inflation Rate)] − 1. If your mutual fund delivered a 14% CAGR but inflation averaged 6%, your real CAGR is roughly 7.5%. In India, where retail inflation frequently runs at 5-7%, ignoring inflation can make your returns look twice as impressive as they truly are.
CAGR assumes a smooth, constant growth rate, which hides the volatility your investment actually experienced. A fund that grew 40% in year one and fell 20% in year two has a very different risk profile from one that grew 8% steadily each year, even if the CAGR is similar. CAGR also cannot capture the impact of dividends unless you use total-return data. For a complete picture of investment performance, pair CAGR with standard deviation, maximum drawdown, and the Sharpe ratio.
CAGR (Compound Annual Growth Rate) measures the annualized return of an investment over time. Formula: CAGR = (Ending Value / Beginning Value)^(1/Years) - 1. It smooths out year-to-year volatility into one consistent rate.
Equity mutual funds have historically delivered 12-15% CAGR over 10+ years. Nifty 50 has given ~12% CAGR since inception. FDs give 6-7%, gold ~8-10%, and real estate ~8-12% depending on location.
No. Absolute return is the total gain (e.g., 100% in 5 years). CAGR annualizes it (e.g., ~14.87% per year). CAGR is better for comparing investments of different durations.
CAGR works for single lump-sum investments (one entry, one exit). XIRR handles multiple cash flows at irregular intervals — it's more appropriate for SIPs, where you invest monthly.
Yes, CAGR is negative when your ending value is less than the beginning value. For example, if ₹1 lakh becomes ₹70,000 in 3 years, the CAGR is approximately -11.2%.