What is CAGR?

CAGR (Compound Annual Growth Rate) is the smoothed annual rate at which an investment would have grown if it had compounded at the same rate every year. It’s the most commonly used metric for measuring investment performance over multiple years, because it removes the noise of yearly fluctuations and gives a fair, comparable number. Mutual fund factsheets, stock performance reports, business growth presentations, and even GDP comparisons all use CAGR. A company growing revenue ‘at 15% CAGR over 5 years’ makes sense to anyone – intuitive and comparable. Unlike simple ROI which doesn’t account for time, CAGR is THE way to compare investments of different durations fairly.

How to use this tool

1. Enter initial value — Starting investment amount or initial business metric (revenue, customers, etc.).
2. Enter final value — Ending value after the time period. Can be larger (growth) or smaller (decline).
3. Enter time period in years — Duration over which growth happened. Use decimals for partial years (e.g. 2.5 for 30 months).
4. Read CAGR — Big number is the annualized growth rate (positive = growth, negative = decline). Below shows total return %, growth multiplier, and profit/loss amount.

CAGR formula

CAGR = (Final Value / Initial Value)^(1/years) – 1

Expressed as percentage: multiply by 100.

Example: Investment grows from ₹1,00,000 to ₹2,00,000 over 5 years.

• CAGR = (200,000 / 100,000)^(1/5) – 1
• = (2)^0.2 – 1
• = 1.1487 – 1
• = 0.1487 = 14.87% per year

This means the investment grew at an EQUIVALENT 14.87% per year compound rate – even though actual yearly returns might have been wildly different (e.g. 30%, -10%, 25%, 5%, 15% averaging to 14.87% CAGR).

Key property: If you invested ₹1 lakh and applied 14.87% return for 5 years compounding, you’d get exactly ₹2 lakh – which is the final value.

Examples

• Stock from ₹100 to ₹200 in 5 years: CAGR 14.87%
• Property from ₹50 lakh to ₹1 crore in 10 years: CAGR 7.18%
• Mutual fund ₹1 lakh to ₹5 lakh in 15 years: CAGR 11.33%
• Company revenue $1M to $10M in 7 years: CAGR 39.0% (decacorn growth)
• Indian Nifty 50 from 2010-2024 (~6,000 to ~22,000): CAGR ~9.8%
• Bitcoin from $10K (2020) to $40K (2024) in 4 years: CAGR 41.4%
• Total population of India from 2010 (1.21B) to 2024 (1.43B): CAGR ~1.2% per year

Tips & best practices

• CAGR doesn’t show volatility – a 15% CAGR could be smooth 15% yearly OR wild swings averaging to 15%
• Use CAGR for comparison across different durations – investment of 5 years vs 10 years is fair to compare via CAGR (not total ROI)
• Inflation-adjusted CAGR (real CAGR) = nominal CAGR – inflation rate. India inflation ~6%, so 12% nominal CAGR = 6% real CAGR
• Compound interest formula: Final = Initial × (1 + CAGR)^years – reverse of the formula above
• Reasonable CAGR expectations: Stocks long-term 10-12% (India 12-14%). Bonds 5-7%. Real estate 6-10%. Inflation 3-6%
• For mutual fund SIPs (regular contributions), simple CAGR doesn’t apply – use XIRR formula in Excel instead
• CAGR can be negative – if investment lost value, CAGR shows the annualized loss rate

Limitations & notes

CAGR assumes constant growth rate which is rarely true – real investments fluctuate. Doesn’t account for: deposits and withdrawals during the period (use IRR or XIRR for that), taxes (real after-tax return is lower), reinvestment of dividends (DRIP calculation needed). For investments with regular contributions (SIPs, monthly savings), CAGR significantly understates the true return – use XIRR.

Frequently Asked Questions

What’s a good CAGR for stock investments?

Long-term historical averages: Indian Nifty 50 about 12-14%. US S&P 500 about 10-11%. Beating these by 2-5% is excellent. Beating by 10%+ either suggests excellent skill or unusually high risk. Beware of ‘high CAGR’ funds – they often have higher volatility.

Is CAGR the same as ROI?

No – ROI is total return percentage over the entire period. CAGR is the annualized rate. 100% ROI over 5 years = 14.87% CAGR. 100% ROI over 10 years = 7.18% CAGR. CAGR is fair for comparing investments of different durations; ROI isn’t.

Why use CAGR instead of average annual return?

Simple average misleads. If you gain 50% one year and lose 30% the next, simple average says ‘+10% per year’. But actually you have 100 → 150 → 105 = 5% total = 2.47% CAGR (not 10%). CAGR accounts for the compounding effect of losses on subsequent gains.

Can CAGR be more than 100%?

Yes – in extraordinary growth situations. Startup unicorns may grow at 100-300% CAGR for several years. Bitcoin saw periods of 200%+ CAGR. But these are unsustainable – typically reverts to lower rates.

How is CAGR different from IRR?

CAGR assumes single investment, single redemption (no cash flows in between). IRR (Internal Rate of Return) handles multiple cash flows – perfect for SIPs, withdrawals, irregular investments. XIRR is the Excel function combining IRR with specific dates. For pure ‘buy and hold’ investments, CAGR and IRR give same answer.

What’s the rule of 72 for CAGR?

Time to double = 72 / CAGR. At 8% CAGR, doubles in 9 years. At 12% CAGR, doubles in 6 years. At 14.4% CAGR, doubles in 5 years. Quick mental math for compounding.

Should I look at 5-year or 10-year CAGR?

Both, plus longer if available. 5-year CAGR shows recent performance. 10-year shows longer trend. 20+ year CAGR (where available) shows truly long-term performance. Compare a fund’s 5-year and 10-year CAGR – if 5-year is much higher, recent strong performance may not sustain.

Related tools

Compound Interest · ROI Calculator · SIP Calculator