What is CAGR?
CAGR stands for Compound Annual Growth Rate. It is the annualised rate of return that describes how much an investment has grown from its starting value to its ending value over a specified period, assuming profits are reinvested at the end of each year. Rather than showing how an investment performed in any one year, CAGR presents the equivalent steady annual rate that would have produced the same result over the full period.
SEBI mandates that mutual funds in India display performance data using CAGR for all periods of one year and above. This makes CAGR the standard benchmark for comparing mutual fund returns, stock performance, and business revenue growth in India. Understanding CAGR is essential before evaluating any investment product.
How can this CAGR calculator help you?
This calculator offers three modes to answer three distinct financial questions:
The formula to calculate CAGR
The standard formula used to calculate CAGR is:
CAGR = (Final Value / Initial Value) ^ (1 / n) - 1
The variables in the formula represent the following:
| Variable | Meaning |
|---|---|
| Final Value | The ending value of the investment |
| Initial Value | The starting value or amount invested |
| n | The number of years the investment was held |
| CAGR | The compound annual growth rate, expressed as a decimal |
Multiply the result by 100 to express CAGR as a percentage.
Example of CAGR calculation
If you invested Rs. 1 lakh and it grew to Rs. 2.5 lakh over 7 years, the CAGR is calculated as follows:
CAGR = (2,50,000 / 1,00,000) ^ (1 / 7) - 1 = 2.5 ^ 0.1429 - 1 = 13.99%
This means your investment grew at an equivalent rate of 13.99 percent per annum for each of those 7 years. The actual return may have varied considerably from year to year, but the CAGR smooths that variation into a single annualised figure.
CAGR versus absolute return
Absolute return measures the total percentage change between the initial and final value, with no adjustment for the length of time. If Rs. 1 lakh became Rs. 2 lakh, the absolute return is 100 percent, irrespective of whether it took 3 years or 15 years.
CAGR converts that gain into an annual rate. A 100 percent absolute return over 5 years equals a CAGR of 14.87 percent per annum. The same 100 percent gain over 10 years equals a CAGR of only 7.18 percent per annum. This distinction matters when comparing two investments that ran for different lengths of time. Without CAGR, a 10-year doubling appears to match a 5-year doubling, when in practice the 5-year investment grew at twice the annualised rate.
What is considered a good CAGR in India?
There is no single benchmark that applies to all investors, because what is considered good depends on the level of risk taken and the investment category. The following reference figures are based on long-term historical data:
| Asset or Benchmark | Approximate 10-Year CAGR |
|---|---|
| Bank savings account | 3.5 to 4% |
| Fixed deposit (major banks) | 6 to 7.5% |
| Public Provident Fund (PPF) | 7.1% |
| Debt mutual funds | 6 to 8% |
| Nifty 50 Index Fund | 11 to 13% |
| Large-cap equity mutual funds | 11 to 14% |
| Flexicap and multicap funds | 13 to 17% |
| Midcap and smallcap funds | 15 to 22% |
For long-term equity planning, a CAGR of 10 to 12 percent is a reasonable and widely used assumption. Midcap and smallcap categories have historically delivered higher returns but with considerably more volatility. Past performance does not guarantee future results.
CAGR, XIRR, and IRR
When to use CAGR
Use CAGR when you have made a single lumpsum investment at one point in time and want to measure the annualised return up to a later date. CAGR is designed for a single initial cash flow and a single final value, with no transactions in between.
When to use XIRR
XIRR is the correct measure whenever there are multiple cash flows at different dates. This includes SIP investments made monthly, partial redemptions, and dividend reinvestments. The return figure shown on your mutual fund statement, Zerodha CAS report, or any broker dashboard for a SIP portfolio is XIRR, not CAGR. Our SIP Calculator uses the XIRR-equivalent formula internally.
When to use IRR
IRR is used in corporate finance and project evaluation where cash flows occur at regular intervals but in varying amounts. XIRR is a generalisation of IRR that allows cash flows at irregular dates. For personal investment purposes, CAGR covers lumpsum scenarios and XIRR covers all multi-instalment scenarios.
Limitations of CAGR
CAGR is a useful summary metric, but it has several limitations that investors should be aware of:
How to use this CAGR calculator
Select the calculation mode that matches your requirement at the top of the calculator:
You can use the sliders to adjust values or click the displayed value to type a precise number directly. The result updates instantly. Expand the year-by-year growth table at the bottom of the calculator to see a detailed breakdown of how compounding works across each year of the investment.