What Is CAGR? How to Calculate Compound Annual Growth Rate and Use It Wisely

When someone says a mutual fund “delivered 14% returns,” what exactly does that mean? If those returns were measured over 5 years with volatility in between, the single most meaningful number to represent that growth is the Compound Annual Growth Rate (CAGR). It is the standard yardstick for comparing investment performance — and every serious investor must understand how to calculate and interpret it.

What Is CAGR?

CAGR is the rate at which an investment would have grown from its beginning value to its ending value, if it had grown at a steady rate every year — reinvesting all gains. It smooths out year-to-year volatility into a single, comparable annual figure.

CAGR Formula = (Ending Value / Beginning Value)^(1/n) − 1
Where n = number of years

CAGR Worked Examples

Example 1: You invested ₹1,00,000 in a mutual fund in 2019. It is worth ₹2,11,000 in 2026 (7 years later).
CAGR = (2,11,000 / 1,00,000)^(1/7) − 1 = 2.11^0.1429 − 1 = 11.3% per year

Example 2: A real estate property bought for ₹45 lakh in 2016 is worth ₹90 lakh in 2026 (10 years).
CAGR = (90/45)^(1/10) − 1 = 2^0.1 − 1 = 7.18% per year

Use our CAGR Calculator for any scenario without manual computation.

What CAGR Doesn’t Tell You

CAGR is a powerful but imperfect metric. It shows the annualised growth from point A to point B — but reveals nothing about the volatility experienced along the way. An investment that crashed 40% in year 2 and recovered strongly can show the same CAGR as one that grew smoothly every year. Always pair CAGR with standard deviation or maximum drawdown when evaluating investment risk.

CAGR vs. Absolute Returns

Absolute return = (Current Value − Investment) / Investment × 100. An investment that grew from ₹1,00,000 to ₹1,50,000 over 3 years has a 50% absolute return but only 14.5% CAGR. Absolute return without the time dimension is meaningless for comparison — always use CAGR.

CAGR vs. XIRR: Which Is More Accurate for SIPs?

CAGR works perfectly for a single lump sum invested once. But for SIPs (multiple investments at different dates), CAGR gives misleading results. XIRR (Extended Internal Rate of Return) accounts for the timing and size of each individual cash flow, making it the correct measure for SIP portfolios. Most mutual fund apps display XIRR for SIP returns — use it when evaluating your SIP performance.

Benchmark CAGR Numbers to Know

Asset Class	Historical CAGR (10-Year Avg.)
Nifty 50 (Indian large-cap equities)	~12–13% p.a.
Gold (INR terms)	~9–11% p.a.
Fixed Deposit (1-year rolling)	~6.5–7.5% p.a.
Real Estate (metro cities)	~6–9% p.a.
PPF	~7–8% p.a.

Related Calculators

Disclaimer: Historical CAGR figures are for illustrative purposes only. Past performance does not guarantee future returns. Investments are subject to market risk.