What is CAGR?
CAGR (Compound Annual Growth Rate) is the steady yearly rate at which a value would have grown to go from its starting point to its ending point, assuming growth was compounded every year. Real investments and businesses rarely grow by the same amount every year; CAGR smooths out the ups and downs into one easy-to-compare number. It is widely used for mutual fund and stock returns, company revenue and profit growth, and even population or website traffic growth.
How to use the CAGR calculator
- Enter the beginning value, such as the amount you invested.
- Enter the ending value, such as the current value of the investment.
- Enter the number of years between the two. Fractions such as 2.5 years are allowed.
- Read the CAGR, the total (absolute) return and how many times the value grew. Optionally project the value into the future.
The CAGR formula
CAGR = (Ending value ÷ Beginning value)1 ÷ years − 1
Example: an investment grows from ₹1,00,000 to ₹2,50,000 in 6 years. CAGR = (2,50,000 ÷ 1,00,000)1/6 − 1 = 2.50.1667 − 1 ≈ 16.50% per year. The absolute return is 150%, but that number alone does not tell you how long it took.
CAGR vs absolute return vs average return
- Absolute return is the total percentage gain, regardless of time. It is fine for periods under a year.
- Average annual return simply averages each year's return and can be misleading. A 50% gain followed by a 50% loss averages 0%, but you actually lose 25%.
- CAGR correctly reflects compounding, which makes it the better way to compare investments held for different lengths of time.
Limitations
CAGR only looks at the start and end values. It hides volatility: two funds with the same CAGR can have very different ups and downs along the way. It also ignores money added or withdrawn in between. For regular monthly investments, XIRR is the correct measure, and our SIP Calculator estimates SIP growth.
Frequently asked questions
What is a good CAGR?
It depends on the asset and risk. Compare an investment's CAGR with inflation and with a benchmark index over the same period.
Can CAGR be negative?
Yes. If the ending value is lower than the beginning value, CAGR is negative.
How do I use CAGR for planning?
Use the projection box: enter an assumed growth rate and number of years to estimate a future value.
Past growth does not guarantee future results. This tool is for information only and is not investment advice.