Growth Parameters
Absolute Profit
₹0
Total Growth %
0%
Investment Performance Result
Compound Annual Growth Rate (CAGR)
This calculator uses the standard CAGR formula widely used in financial analysis and investment performance evaluation.
CAGR calculation formula step by step
Final Value: Current value of the investment
Initial Investment: Beginning value of the investment
n: Number of years (Investment Period)
CAGR Formula Explained with Example
Compound Annual Growth Rate (CAGR) is the rate of return required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each year of the investment's lifespan.
Example: Suppose you invested ₹1,00,000 in a stock in 2021. By 2026 (5 years later), the value becomes ₹1,80,000.
- Absolute Gain: ₹80,000 (80%)
- CAGR Calculation: [(1,80,000 / 1,00,000)1/5 - 1]
- Result: 12.47% Annualized Return
This means your money grew by an average of 12.47% every year for 5 years.
CAGR vs XIRR vs Absolute Return
| Metric | Best Used For | Complexity |
|---|---|---|
| Absolute Return | Short term (< 1 year) or simple total gain | Very Simple |
| CAGR | Point-to-point lumpsum over multiple years | Medium |
| XIRR | Irregular cash flows like SIPs or Portfolios | High |
What is a Good CAGR in India?
Evaluating your returns depends on the asset class and beating the Inflation Rate:
- Fixed Deposits: 6% – 7.5% (Safe but often barely beats inflation).
- Mutual Funds (Equity): 12% – 15% (Standard long-term expectation in India).
- Direct Stocks: 15% – 20%+ (Possible with active management and higher risk).
A "good" CAGR is typically anything that is 4-5% higher than the prevailing inflation rate. For heavy one-time investments, check our Lumpsum Calculator to plan future targets.
CAGR vs Inflation (Real Return)
The "Nominal Return" is what your CAGR shows. However, the "Real Return" is what matters for your purchasing power. If your stock portfolio CAGR is 12% but inflation is 6%, your real wealth growth is roughly 6%.
Always plan your long-term goals by using a conservative CAGR estimate and adjusting for the rising costs of living found in our Inflation Tool.
Why Use CAGR?
Unlike absolute returns, CAGR accounts for the time value of money and provides a smoothed annual rate. This is particularly useful in India for comparing the performance of a volatile asset like a mutual fund investment against a steady asset like a Fixed Deposit (FD). Furthermore, CAGR can help you compare these potential investment returns against the cost of borrowing as calculated by an EMI calculator.
Limitations of this Calculator
- Ignores Interim Volatility: CAGR only looks at the starting and ending values. It completely smooths out what happens in between. Your investment could have crashed by 50% in year 2 and recovered by year 5, but the CAGR won't show this terrifying volatility.
- Not Suitable for SIPs: CAGR is exclusively for single, one-time point-to-point investments. If you made multiple investments over time (like a monthly SIP), using CAGR will give you wildly inaccurate results. You must use XIRR instead.
Common Mistakes
- Assuming Guaranteed Future Returns: Just because a mutual fund delivered a 20% CAGR over the last 5 years does not mean it will do so for the next 5. Past performance is not a guarantee of future results.
- Overlooking Risk Adjusted Returns: Comparing a small-cap fund's 18% CAGR against a large-cap fund's 14% CAGR without considering the significantly higher risk (Standard Deviation or Beta) associated with the small-cap fund.