CAGR (compound annual growth rate) tells you the steady yearly rate at which an investment would have grown from its starting value to its ending value. It's the fairest way to compare investments held for different lengths of time.
The CAGR formula
CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1Example: ₹1 lakh grows to ₹2.5 lakh in 7 years
2.5^(1 ÷ 7) − 1 = 0.1398.
CAGR ≈ 13.98% a year.
The absolute return is 150%, but that ignores how long it took.
CAGR vs absolute return vs XIRR
- Absolute return = (end − start) ÷ start. Useful for periods under a year.
- CAGR smooths growth into one yearly rate. Use it for a single lump sum held for several years.
- XIRR handles many cash flows at different dates, such as a SIP. Mutual fund statements show XIRR for that reason.
CAGR hides the ups and downs: a fund that fell 30% one year and rose sharply later can show the same CAGR as one that grew steadily.
Using CAGR
Compare a fund's CAGR with its benchmark index over the same period, and with inflation, to see the real return. To project forward, use the CAGR as the expected rate in the lumpsum calculator.
How to use this calculator
- Enter the starting and ending values.
- Enter the number of years.
FAQs
Can I use CAGR for salary growth?
Yes. Enter your first and current salary to see your yearly growth rate.
Results are estimates and aren't financial advice. For decisions about your own money, check with a qualified adviser. Spotted a mistake? Tell us.