Home › Calculators › CAGR
CAGR calculator
Compound annual growth rate tells you the steady yearly rate that would turn a starting value into an ending value.
The formula
CAGR = (End ÷ Start)^(1 ÷ years) − 1
An investment that goes from ₹1,00,000 to ₹2,50,000 in five years has gained 150% in total, but its CAGR is 20.11%. Dividing 150% by five would give 30%, which overstates the annual growth because it ignores compounding.
Where CAGR helps and where it misleads
CAGR lets you compare investments held for different periods: a property, a stock, a gold coin and a fund can all be put on the same yearly scale. It says nothing about the journey, though. Two funds with the same CAGR may have had very different falls along the way. It also assumes a single investment at the start; for a SIP or any series of cash flows, XIRR is the right measure.
Questions
Is CAGR the same as average return?
No. A simple average of yearly returns is always equal to or higher than the CAGR. Gaining 50% and then losing 50% averages zero, yet leaves you 25% down.
What is a good CAGR?
One that beats inflation and the return on a safe alternative after tax, for the risk taken. Compare against a relevant index over the same period.