CAGR formula: [(Final Value / Initial Value)^(1 / years)] − 1
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⚠️ Use this for lump sum investments only. For SIPs, use the XIRR Calculator.
CAGR (Compound Annual Growth Rate) is the average annual return of an investment over time, assuming profits are reinvested. It helps compare different investments on a yearly basis.
Example: ₹1,00,000 growing to ₹1,76,234 in 5 years gives approximately 12% CAGR.
Inputs used are initial value, final value, and years. Real CAGR uses the optional inflation assumption (default 6.0%).
CAGR Formula:
CAGR = (Final Value / Initial Value)^(1 / Years) - 1
Where n = Number of Years
Practical Example: If your investment of ₹1,00,000 grows to ₹1,76,234 in 5 years:
Absolute return tells you total gain %. CAGR tells you annualised rate. They diverge significantly over time.
Always use CAGR when comparing investments of different durations. Absolute return alone is misleading.
Divide 72 by CAGR to estimate how many years it takes to double your money.
This is why even a 2–3% difference in CAGR creates massive wealth differences over 20–30 years.
CAGR assumes smooth, constant growth. In reality investments are volatile.
CAGR is best for lump-sum, start-to-end investment measurement.
Nifty 50 has delivered ~12% CAGR over 15–20 years. This is the benchmark to beat.
Three return metrics exist; choose based on cash-flow pattern.
As per SEBI investor education practice, XIRR is preferred for SIP cash-flow analysis. Most mutual fund apps report XIRR for SIPs and CAGR for lumpsum. Never compare the two directly.
Use CAGR for long-term comparability, then validate decision with risk, volatility, and cash-flow suitability.
The CAGR formula is:
CAGR = [(Final Value / Initial Value) ^ (1 / Number of Years)] - 1
This provides the geometric mean return that would grow the initial value to the final value.
Simple averages fail with compounding. If an investment grows 100% in year 1 and drops 50% in year 2, your money is back to zero gain (100 -> 200 -> 100). A simple average suggests 25% growth, but CAGR correctly shows 0% growth.
Yes, but ensure you include costs like maintenance, property tax, and registration in the initial value, and any rental income in the final calculations to get a realistic CAGR.
Historically, the Nifty 50 TRI has delivered a CAGR of approximately 12% to 15% over long periods (15-20 years). Beating or matching this benchmark is typically considered a successful long-term investment.
No. Use CAGR for lumpsum (point-to-point) investments. For SIPs or irregular monthly investments, XIRR is the correct metric as it accounts for multiple cash flows at different times.
Yes, if the final value of your investment is lower than the initial investment, the CAGR will be negative. This indicates an annualized loss or wealth erosion over the investment period.
Absolute Return measures the simple percentage increase in value from start to finish. CAGR, conversely, accounts for the time duration and the power of compounding, giving you an annualized, "smoothed" growth rate which is better for comparing different investments.
While a 15% CAGR is considered excellent and can be achieved through disciplined equity mutual fund investments in growing markets like India, it comes with high volatility. It is a realistic target for an aggressive, well-diversified equity portfolio over a 10+ year horizon, but it is never guaranteed.