CAGR Calculator - Calculate Compound Annual Growth Rate

What is CAGR (Compound Annual Growth Rate)?

CAGR stands for Compound Annual Growth Rate. It represents the mean annual growth rate of an investment over a specified time period longer than one year. CAGR provides a constant rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming profits were reinvested at the end of each year.

How to Calculate CAGR?

The CAGR formula smooths out the effect of volatility of periodic returns and gives you a single number that represents the average annual growth rate. Here's how CAGR is calculated:

CAGR Calculation Example

Let's understand CAGR with a simple example. Suppose you invested ₹1,00,000 in a mutual fund 5 years ago, and today its value is ₹2,00,000. Using the CAGR formula:

CAGR = (2,00,000 / 1,00,000)^(1/5) - 1 = 14.87%

This means your investment grew at an average annual rate of 14.87% over the 5-year period.

Benefits of Using CAGR Calculator

• Performance Comparison: Compare different investments on an equal footing
• Smooth Returns: Eliminates the effect of volatility in periodic returns
• Future Projections: Helps estimate future investment values
• Goal Planning: Determine required growth rate to achieve financial goals
• Risk Assessment: Evaluate if returns justify the investment risk taken

CAGR vs Absolute Returns

While absolute returns tell you the total percentage gain over the entire period, CAGR tells you the annualized return. For long-term investments, CAGR provides a more meaningful comparison as it accounts for the time factor. For instance, a 100% return over 10 years is very different from a 100% return over 2 years.