CAGR Calculator
Calculate the Compound Annual Growth Rate (CAGR) of your investments
Calculate CAGR
CAGR Result
0.00%
Compound Annual Growth Rate
Example Investments
Click on any example to see how CAGR is calculated for different investments:
Initial
₹1,00,000
Final
₹1,95,600
Initial
₹50,000
Final
₹82,000
Initial
₹30,00,000
Final
₹60,00,000
Initial
₹2,00,000
Final
₹2,80,000
What is CAGR?
Compound Annual Growth Rate (CAGR) is a measure of the mean annual growth rate of an investment over a specified time period longer than one year.
Unlike simple annual growth rates, CAGR smooths out the volatility of returns by assuming a steady growth rate year over year.
Formula: CAGR = (Final Value / Initial Value)^(1/n) - 1, where n is the number of years
Understanding CAGR
Benefits of Using CAGR
- Smooths Out Volatility: CAGR provides a smoothed annual growth rate, eliminating the distorting effects of year-to-year volatility.
- Easy Comparison: It allows for straightforward comparison between different investments, regardless of their time horizons.
- Accounts for Compounding: CAGR factors in the effect of compounding, which simple average returns do not.
- Better Decision Making: Provides a clearer picture of an investment's performance over time, helping make more informed decisions.
CAGR vs. Absolute Returns
While absolute returns tell you the total gain or loss on an investment over a period, CAGR provides context by annualizing this return. For example:
- If an investment grew from ₹10,000 to ₹15,000 in 5 years, the absolute return is 50%.
- The CAGR for the same investment would be 8.45% per year.
This annualized view makes it easier to compare with other investment options like fixed deposits, mutual funds, or even inflation rates.
Limitations of CAGR
- Ignores Volatility: While smoothing is useful, CAGR doesn't show the ups and downs experienced along the way.
- Past Performance: Like all historical measures, CAGR doesn't guarantee future returns.
- Assumes Reinvestment: CAGR calculations assume that all returns are reinvested, which may not always be the case.
- No Risk Indication: It doesn't provide any information about the risk taken to achieve the returns.
When to Use CAGR
- When comparing investments with different time horizons
- For measuring the performance of long-term investments
- When evaluating investment growth against inflation
- For setting realistic growth expectations for future investments
- When analyzing the performance of various asset classes over time
CAGR in Indian Investments: Analysis and Insights
In the Indian investment landscape, CAGR serves as a vital metric for comparing various investment avenues. Over the past decade, the Indian equity market, represented by indices like Nifty 50 and Sensex, has delivered a CAGR of approximately 10-12%, outperforming traditional fixed-income options but with higher volatility.
When analyzing mutual fund performance in India, CAGR is typically reported for 1-year, 3-year, 5-year, and since-inception periods. This helps investors understand how a fund has performed over different market cycles. For instance, large-cap equity funds in India have historically delivered 10-12% CAGR over 10-year periods, while mid-cap and small-cap funds have shown higher CAGRs of 12-15% but with increased volatility.
Real estate in major Indian cities has shown varying CAGRs depending on location and time period. From 2010 to 2020, residential real estate in cities like Mumbai, Delhi, and Bangalore showed CAGRs ranging from 5-9%, though with significant regional variations. Commercial real estate, particularly in tech hubs, has often outperformed residential properties in terms of CAGR.
Gold, a traditional investment favorite in India, has delivered a CAGR of approximately 8-10% over the past two decades, serving as both an inflation hedge and a portfolio diversifier. Meanwhile, fixed deposits and government-backed small savings schemes have offered CAGRs in the range of 6-8%, providing stability but barely outpacing inflation in many periods.
When using CAGR for investment decisions in India, it's important to consider it alongside other metrics like Sharpe ratio for risk-adjusted returns, standard deviation for volatility, and to account for factors like taxation and inflation which can significantly impact real returns.