Quick answer
How is CAGR calculated?
CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1. If ₹1,00,000 grows to ₹2,00,000 in 6 years, the CAGR is about 12.25% a year, even though the absolute return is 100%. CAGR lets you compare investments held for different lengths of time.
- Formula: (End ÷ Start)1/years − 1
- Doubling in 6 years ≈ 12.25% CAGR
- For SIPs use XIRR instead
What is the CAGR formula?
Example: ₹1,00,000 grows to ₹2,00,000 in 6 years. 21/6 = 1.1225, so CAGR = 12.25% a year.
How do you use the CAGR calculator?
Enter three numbers: the starting value, the ending value and the number of years between them. The CAGR calculator shows the compound annual growth rate, the absolute return and how many times your money multiplied.
- Investments: use the price you paid and today’s value of a stock, fund, gold or property.
- Business: use revenue or profit in the first and last year. Sales that rise from ₹10 lakh to ₹25 lakh in 5 years grew at a CAGR of about 20.11%.
- Part years: years can be a decimal. ₹1,00,000 growing to ₹1,30,000 in 2.5 years is a CAGR of about 11.07%.
How is CAGR different from absolute return?
Absolute return is the total change over the whole period. CAGR turns that into a steady yearly rate, so you can compare investments held for different lengths of time.
| Start → end | Years | Absolute return | CAGR |
|---|---|---|---|
| ₹1,00,000 → ₹1,50,000 | 3 | 50% | 14.47% |
| ₹1,00,000 → ₹2,00,000 | 6 | 100% | 12.25% |
| ₹1,00,000 → ₹2,00,000 | 10 | 100% | 7.18% |
| ₹5,00,000 → ₹4,00,000 | 3 | −20% | −7.17% |
A bigger absolute return isn’t always better. A 50% gain in 3 years beats a 100% gain over 10 years on a yearly basis.
Frequently asked questions
What is CAGR?
CAGR (compound annual growth rate) is the steady yearly rate at which an investment would have grown from its starting value to its ending value. It smooths out the ups and downs along the way.
How do you calculate CAGR?
CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1. An investment that doubles from ₹1 lakh to ₹2 lakh in 6 years has a CAGR of about 12.25%.
What is the difference between CAGR and absolute return?
Absolute return is the total gain over the whole period (100% if money doubles). CAGR spreads that over the years as a yearly compound rate, which makes investments of different lengths comparable.
Should I use CAGR or XIRR for a SIP?
Use XIRR for SIPs and other investments with many cash flows on different dates. CAGR is for a single investment with one start and one end value.
Can CAGR be negative?
Yes. If the ending value is below the starting value, CAGR is negative. ₹5 lakh falling to ₹4 lakh over 3 years is a CAGR of about −7.17% a year.
What is a good CAGR?
It depends on the asset and the risk. Compare it with inflation and with safer options such as FD rates: diversified Indian equity funds have delivered around 12% a year over many long periods, but past CAGR is no guarantee of future returns.