What Is CAGR?
Learn how Compound Annual Growth Rate helps investors measure performance over time.
Table Of Contents
What Is CAGR?
CAGR stands for Compound Annual Growth Rate.
It represents the average annual growth rate of an investment over a specific period, assuming growth occurred at a steady rate.
Investors use CAGR because it makes it easier to compare different investments over different time periods.
CAGR Formula
CAGR = (FV / PV)^(1/n) - 1
- FV = Final Value
- PV = Initial Value
- n = Number of Years
How CAGR Works
Suppose you invest ₹100,000 and it grows to ₹300,000 in 10 years.
CAGR calculates the equivalent annual growth rate required to achieve that result.
In this case, the CAGR is approximately 11.61%.
CAGR vs Total Return
| Metric | Meaning |
|---|---|
| Total Return | Overall investment growth |
| CAGR | Average annual growth rate |
Advantages Of CAGR
- Easy comparison between investments.
- Standardized annual return metric.
- Useful for long-term performance analysis.
- Widely used by investors and analysts.
Limitations Of CAGR
- Assumes steady growth.
- Ignores volatility.
- Does not show investment risk.
- May oversimplify performance.
CAGR Examples
- ₹100,000 → ₹300,000 in 10 years = CAGR ≈ 11.61%
- ₹500,000 → ₹1,000,000 in 10 years = CAGR ≈ 7.18%
- ₹1,000,000 → ₹2,500,000 in 12 years = CAGR ≈ 7.94%
Calculate CAGR Instantly
Use our free CAGR Calculator to calculate annualized investment returns.
Open CAGR Calculator →Frequently Asked Questions
What does CAGR stand for?
CAGR stands for Compound Annual Growth Rate. It measures the average annual growth rate of an investment over a specific period.
Why is CAGR useful?
CAGR helps compare investments by converting growth into a consistent annual percentage rate.
Can CAGR be negative?
Yes. If an investment loses value over time, CAGR will be negative.
Is CAGR the same as total return?
No. Total return measures overall growth, while CAGR measures annualized growth.
Can CAGR be used for stocks and mutual funds?
Yes. CAGR is commonly used for stocks, mutual funds, ETFs, and other investments.
Conclusion
CAGR is one of the most important metrics for evaluating investment performance.
By converting growth into an annualized percentage, it makes comparing investments much easier.