CAGR Calculator

What is CAGR (Compound Annual Growth Rate)?

CAGR, or Compound Annual Growth Rate, represents the smoothed annual rate of return that an investment would need to grow from its initial value to its final value over a given period, assuming the profits are reinvested at the end of each year. Unlike average annual returns, CAGR eliminates the effect of volatility and provides a single, consistent rate that accurately reflects overall growth. It is the most widely used metric for comparing investment performance across different asset classes, time periods, and products in India and globally.

For example, if a mutual fund grew by 25% in year one, lost 10% in year two, and gained 15% in year three, the simple average return would be 10%. However, the CAGR gives you the true annualised return that accounts for compounding — which would be approximately 9.14%. This makes CAGR a far more accurate and reliable measure than simple averages.

The CAGR Formula

CAGR is calculated using a straightforward formula:

CAGR = (FV / PV)^1/n − 1

• FV = Final Value of the investment
• PV = Present Value (initial investment amount)
• n = Number of years

The result is expressed as a percentage. For example, if you invested ₹1,00,000 and it grew to ₹3,00,000 in 10 years: CAGR = (3,00,000 / 1,00,000)^1/10 − 1 = 11.61%.

Why CAGR Instead of Absolute Returns?

Absolute returns simply tell you the total percentage gain — in the example above, it would be 200%. But this number is misleading without context about the time taken. Consider two investments:

• Investment A: ₹1 lakh grows to ₹3 lakh in 10 years — absolute return 200%, CAGR 11.61%
• Investment B: ₹1 lakh grows to ₹3 lakh in 5 years — absolute return 200%, CAGR 24.57%

Both have the same absolute return, but Investment B is clearly superior because it achieved the same growth in half the time. CAGR makes this immediately apparent.

Sensex CAGR: Historical Performance of Indian Markets

The BSE Sensex has delivered impressive long-term CAGR, demonstrating the power of equity investing in India:

• 10-year CAGR (2015–2025): approximately 11–12%
• 20-year CAGR (2005–2025): approximately 12–13%
• 30-year CAGR (1995–2025): approximately 11–12%
• Since inception (1979): approximately 15–16% CAGR

These numbers illustrate why long-term equity investment has been one of the best wealth-creation strategies in India, consistently beating inflation, FDs, gold, and most other asset classes.

How to Use CAGR for Comparing Investments

• Mutual funds: Compare 5-year and 10-year CAGR of funds within the same category to identify consistent performers
• Real estate: Calculate property appreciation CAGR to see if it has beaten inflation and alternative investments
• Gold: Gold in India has delivered roughly 10–11% CAGR over 20 years (in INR terms)
• Business growth: Compare revenue or profit CAGR of companies to evaluate which businesses are growing faster

Limitations of CAGR

• Ignores volatility: CAGR smooths out all the ups and downs. Two investments with the same CAGR can have vastly different risk profiles.
• Sensitive to start and end points: If you measure CAGR from a market peak to a trough (or vice versa), it can be misleading.
• Does not account for additional investments or withdrawals: CAGR assumes a single lumpsum investment with no additions. For SIPs, use XIRR instead.
• Past CAGR does not guarantee future returns: Historical performance, while informative, should not be the sole basis for investment decisions.

When to Use This CAGR Calculator

Use this calculator to determine the annualised growth rate of any investment — whether it is a stock, mutual fund, property, gold, or business revenue. It helps you make apples-to-apples comparisons across investments with different amounts, time periods, and volatility patterns.