CAGR (Compound Annual Growth Rate) Calculator
Measures smoothed annualized compound investment growth over multi-year holding periods, removing interim volatility fluctuations.
How This Calculation Formula is Formulated
Compound Annual Growth Rate (CAGR) measures the geometric mean annualized growth rate of an investment over a multi-year period assuming steady compounding. Unlike arithmetic average returns, CAGR eliminates the distorting effects of interim annual volatility.
Variable Definitions & Measurement Units
Mutual Fund Investment Growing from ₹1,00,000 to ₹2,50,000 over 5 Years
Why CAGR is Superior to Arithmetic Mean
If an investment gains +100% in year one (doubling from $100 to $200) and loses −50% in year two (dropping back to $100), the arithmetic average is (100% − 50%) / 2 = +25% per year. However, you have zero net profit.
CAGR correctly evaluates the true outcome: ($100 / $100)^(1/2) − 1 = 0.00% CAGR. In finance, only geometric compounding represents actual investor wealth growth.
Frequently Asked Questions About CAGR (Compound Annual Growth Rate) Calculator
What is a good CAGR for stock market investments?
Historically, broad market indices (such as S&P 500 or Nifty 50) have generated long-term CAGRs of 10% to 13% over 10- to 20-year horizons before inflation.
Can CAGR be calculated for periods shorter than one year?
Mathematically yes, but annualizing short periods (e.g., 3 months) can be highly misleading due to transient volatility.
Does CAGR account for interim dividends or SIP additions?
No. Standard CAGR assumes a single point-to-point lump-sum investment. For cash flows with recurring deposits, use XIRR (Extended Internal Rate of Return).
What is the difference between CAGR and Absolute Return?
Absolute return only measures total percentage gain without regard to time. Earning 50% over 2 years is exceptional (22.5% CAGR), while earning 50% over 10 years is modest (4.1% CAGR).
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