CAGR (Compound Annual Growth Rate) is the smoothed annual rate at which an investment grew from its beginning value to its ending value over a specific period. It represents what your investment grew at as if it had grown at a steady rate each year — making it the gold standard for comparing investment performance.
📐 CAGR Formula
CAGR = [(Ending Value / Beginning Value)^(1/n)] – 1
Where n = number of years. Result is expressed as a percentage.
Example: You invested ₹1,00,000 and it grew to ₹2,15,892 over 8 years. CAGR = (2,15,892/1,00,000)^(1/8) – 1 = 10.08% per annum.
📊 CAGR vs Absolute Returns
| Metric | Formula | Best Used For |
|---|---|---|
| Absolute Return | (Final–Initial)/Initial × 100 | Short periods (under 1 year) |
| CAGR | [(Final/Initial)^(1/n)]–1 | Multi-year investment comparison |
| XIRR | Uses IRR with cash flow dates | SIP / irregular investments |
🏦 CAGR vs XIRR: When to Use Which?
Use CAGR for lump sum investments with a clear start and end point. Use XIRR for SIPs and any investment involving multiple cash flows at irregular dates. XIRR is the accurate measure for SIP performance because it accounts for the timing of each installment.
💡 How to Use CAGR to Compare Investments
- Compare two mutual funds over the same period using CAGR — choose the higher one
- Compare your portfolio CAGR vs benchmark (e.g., Nifty 50 CAGR) to see if you’re outperforming
- Use CAGR to evaluate whether a stock has been a good long-term investment
- Apply CAGR to business revenue growth to communicate performance clearly
🧮 Calculate CAGR Instantly
Use our free CAGR Calculator to calculate compound annual growth rate for any investment. Simply enter starting value, ending value, and number of years.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Consult a qualified financial advisor for personalized guidance.
