What Is CAGR and How to Calculate It
CAGR (compound annual growth rate) tells you the steady yearly growth rate between two values. It helps you compare investments over different periods.
The formula
CAGR = (Ending value / Starting value)^(1 / Years) - 1
Example 1
An investment grows from ₹1,00,000 to ₹2,50,000 in 5 years. CAGR = 2.5^(1/5) - 1, which is about 20.1% a year. Check it in the CAGR Calculator.
Example 2: comparing two investments
| Starting value | Ending value | Years | CAGR | |
|---|---|---|---|---|
| A | ₹1,00,000 | ₹1,80,000 | 4 | about 15.8% |
| B | ₹1,00,000 | ₹2,50,000 | 7 | about 14.0% |
B ends with more money, but A grew faster each year. CAGR lets you compare them fairly.
Where CAGR can mislead
- It smooths out ups and downs, so it hides how much the value moved in between.
- It does not work well when you add or withdraw money along the way, as with a SIP. XIRR is used for that.
- Past CAGR does not promise future returns.
For a one-time investment, you can also estimate the future value with the Lump Sum Calculator.
Note: Results are estimates for learning and planning. They are not financial, tax or investment advice, and actual figures from your bank or lender may differ. See our disclaimer.
Frequently asked questions
Is CAGR the same as the average annual return?
No. Simple averages ignore compounding. CAGR includes it.
Can CAGR be negative?
Yes, when the ending value is lower than the starting value.
Can I use CAGR for SIP returns?
Not accurately, because money goes in at different times. Use XIRR for that.