CAGR Calculator – Calculate Annual Growth Rate Easily
Calculate the Compound Annual Growth Rate (CAGR) of your investments. Determine the precise annualized return of your mutual funds, stocks, or business growth over time.
The CAGR Calculator smooths out the volatility of your investment returns to give you a single annual growth number. Unlike absolute returns, CAGR accounts for the time duration, making it the best metric to compare different investment opportunities like Mutual Funds, Gold, or Real Estate.
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CAGR Formula Explained
- EV: Ending Value (Final Investment Value)
- BV: Beginning Value (Initial Investment Value)
- n: Number of Years
This formula calculates the effective compounded interest rate per year.
How to use this CAGR Calculator?
Using this calculator is straightforward and helps you avoid complex mathematical formulas. Follow these steps:
- Enter Initial Value: Input the amount you originally invested. For example, if you bought shares worth ₹50,000, enter 50000.
- Enter Final Value: Input the current value of that investment. If those shares are now worth ₹80,000, enter 80000.
- Enter Duration: Specify the time period in years between the initial investment and the final valuation.
- Analyze Results: The tool instantly calculates the CAGR percentage, absolute growth, and visualizes the profit or loss.
CAGR Calculation Examples
Understanding how different time periods affect the annualized return.
| Initial Investment | Final Value | Duration | Absolute Return | CAGR (%) |
|---|---|---|---|---|
| ₹1,00,000 | ₹2,00,000 | 5 Years | 100% | 14.87% |
| ₹1,00,000 | ₹2,00,000 | 3 Years | 100% | 25.99% |
| ₹50,000 | ₹75,000 | 2 Years | 50% | 22.47% |
Is CAGR the Right Metric for Mutual Funds?
CAGR works best for lump sum investments where there is a single investment and a single final value. However, most mutual fund investors in India invest via SIPs, where money is added monthly. In such cases, CAGR gives misleading results and XIRR should be used instead.
If you invest ₹10,000 per month for 10 years, your returns depend on cash flow timing. Use our SIP Calculator or XIRR calculator for accurate results.
Limitations of CAGR
While CAGR is an excellent metric for comparing returns, it has certain limitations that investors must be aware of:
- Ignores Volatility: CAGR assumes steady growth. It does not reflect the ups and downs (volatility) the investment experienced during the tenure. A fund might have crashed 50% in one year and recovered the next, but CAGR will simply show the average.
- Sensitive to Time Period: CAGR only considers the start and end dates. If the market was at a peak during your start date or a crash during your end date, the CAGR might give a misleading picture of the fund’s actual performance.
- Not for SIPs: CAGR works best for lumpsum investments. For systematic investments (SIPs) where cash flows happen at different intervals, XIRR is the correct metric.
CAGR Calculator FAQs
CAGR stands for Compound Annual Growth Rate. It is the most accurate way to calculate the mean annual growth rate of an investment over a specified time period longer than one year. Unlike absolute returns, which only show the total gain, CAGR accounts for the “time value of money” and compounding effects. It smooths out the volatility of yearly returns, giving you a single, simplified annual rate to compare different asset classes like Mutual Funds, Gold, or Real Estate. For more technical definitions, refer to Investopedia’s CAGR Guide.
Absolute return calculates simple profit percentage without considering time. For example, if you invest ₹1 Lakh and it becomes ₹1.5 Lakhs, your absolute return is 50%. However, achieving this in 2 years is very different from achieving it in 10 years. CAGR factors in the duration. In this example, the CAGR for 2 years would be ~22.4%, whereas for 10 years, it would be only ~4.1%. Therefore, CAGR is the superior metric for long-term performance analysis.
You should use CAGR when you have a “Lumpsum” investment scenario—meaning one initial outflow and one final inflow (Point-to-Point). For example, buying a plot of land and selling it 10 years later. However, if your investment involves multiple cash flows at different times (like a monthly SIP in Mutual Funds or irregular withdrawals), CAGR will be inaccurate. In such cases, you must use XIRR (Extended Internal Rate of Return), which accounts for the timing of every specific cash flow. Understand when to use XIRR instead of CAGR in XIRR vs CAGR explained.
A “good” CAGR depends entirely on the asset class and inflation. In India, where long-term inflation hovers around 6-7%, a good investment must beat this. Historically:
• Debt Funds/FDs: 6-8% CAGR (Capital Protection).
• Gold: 8-10% CAGR (Inflation Hedge).
• Nifty 50/Equity Mutual Funds: 12-15% CAGR (Wealth Creation).
• Real Estate: Varies wildly but often targets 10-12%.
No, this is the main limitation of CAGR. It provides a “smoothed” rate, assuming the investment grew at a steady pace every year. In reality, an investment might drop -20% in Year 1 and jump +40% in Year 2. CAGR will only show the average result, hiding the roller-coaster ride. Investors should look at standard deviation or rolling returns alongside CAGR to understand risk.
Yes, absolutely. If your Final Investment Value is lower than your Initial Investment Value, the CAGR will be negative. This indicates that your capital has eroded over time. For example, if you invested ₹1 Lakh and it became ₹80,000 over 3 years, your CAGR is approximately -7.17%, indicating an annual compounded loss.