CAGR Calculator

⚡ In shortCAGR — the compound annual growth rate — is the steady yearly rate that would take your investment from its starting value to its current value, and it is the only fair way to compare investments held for different lengths of time.

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How it is calculated

Absolute return simply tells you how much you gained overall: (final − initial) ÷ initial. It ignores time, which makes it misleading — doubling your money is excellent in 3 years and mediocre in 20. CAGR fixes that by annualising the return: it is the nth root of (final ÷ initial) minus one, where n is the number of years. So money that doubles in 5 years has a CAGR of about 14.9%, while doubling in 10 years is about 7.2%. CAGR assumes a single lump sum with no additions or withdrawals — for a SIP or any series of cash flows, XIRR is the right measure instead. It also smooths out the journey: a fund with a 12% CAGR may have swung wildly year to year.

What a compound annual growth rate actually describes

CAGR is the constant annual rate that would take a starting value to an ending value over a given period. It is a smoothing device, not a description of what happened: an investment that fell 40% and then doubled can show a respectable CAGR while the experience of holding it was nothing like steady growth. Use it to compare outcomes, not to characterise the ride.

It hides volatility, and volatility matters

Two investments with identical CAGR can have very different risk. The one that moved in a narrow band and the one that halved on the way are not equivalent, particularly if you might have needed the money at the wrong moment. When comparing options on CAGR alone, ask separately how far each fell at its worst point — that is the number that determines whether you would actually have held on.

CAGR is wrong for irregular contributions

CAGR assumes a single lump sum at the start and a single value at the end. If you invested through a SIP, added money at intervals, or made withdrawals, CAGR does not describe your return — XIRR does, because it weights each cash flow by the time it was invested. Applying CAGR to a SIP overstates or understates the result depending on when the money went in. Use the SIP calculator for regular contributions.

Compare after tax and after inflation, not before

A headline CAGR is a pre-tax, nominal number. Equity, debt, property and deposits are taxed differently, so two investments with the same gross CAGR can leave you with quite different amounts. Inflation then reduces what the remainder buys. A 9% nominal return with 6% inflation is roughly 3% in real terms before tax — which is the figure that determines whether the investment actually advanced your position.

Where it is genuinely the right tool

CAGR works well for comparing single-lump-sum outcomes over identical periods: two funds held for the same five years, or a business's revenue growth across a defined span. It becomes misleading over very short periods, where a single good or bad year distorts the annualised figure, and across different time horizons, where the comparison is not like for like. Match the period before comparing the number.

Frequently asked questions

What is a good CAGR for equity in India?

Broad Indian equity indices have historically returned roughly 11-14% CAGR over long periods, though any given decade can differ sharply. Debt instruments typically sit around 6-8%. Past returns do not predict future ones.

What is the difference between CAGR and absolute return?

Absolute return is the total percentage gain regardless of time. CAGR converts that into a per-year rate, so investments held for different periods can be compared fairly.

Should I use CAGR for a SIP?

No. CAGR assumes one lump sum invested at the start. For a SIP, where money goes in at many different dates, use XIRR, which accounts for the timing of each instalment.

Does CAGR account for tax or inflation?

No — it is a pre-tax, nominal figure. To judge real wealth creation, subtract inflation and the tax on your gains (for example 12.5% LTCG above ₹1.25 lakh on listed equity).