CAGR Calculator

CAGR stands for Compound Annual Growth Rate. It is the mean annual growth rate of an investment over a specified period of time longer than one year. CAGR represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

Why it matters: Unlike simple average returns, CAGR accounts for the compounding effect and provides a smoothed annual rate of return. This makes it easier to compare the performance of different investments over varying time periods, giving you a clear picture of actual growth.

The CAGR Calculator instantly computes your investment's compound annual growth rate, helping you evaluate performance objectively.

Key Benefits:

• Compare Investments: Easily compare returns across different asset classes, time periods, and investment vehicles
• Evaluate Performance: Understand how well your portfolio has actually performed on an annual basis
• Set Realistic Goals: Use historical CAGR to set achievable future investment targets
• Benchmark Analysis: Compare your investment's CAGR against market indices like Nifty 50 or S&P 500
• Rule of 72: Quickly estimate how long it takes to double your money based on CAGR

The CAGR formula provides the smoothed annual rate of return:

Formula:

CAGR = (Final Value / Initial Value)^(1/n) - 1

Where:

• Final Value = Ending value of the investment
• Initial Value = Beginning value of the investment
• n = Number of years

Example:

You invested ₹1,00,000 five years ago and it's now worth ₹2,00,000.

CAGR = (2,00,000 / 1,00,000)^(1/5) - 1

CAGR = (2)^0.2 - 1

CAGR = 1.1487 - 1

CAGR = 14.87%

This means your investment grew at an average rate of 14.87% per year, compounded annually.

The Rule of 72 is a quick mental math shortcut to estimate how long it takes for an investment to double at a given CAGR.

Formula:

Years to Double = 72 / CAGR%

Examples:

• At 6% CAGR: 72/6 = 12 years to double
• At 12% CAGR: 72/12 = 6 years to double
• At 15% CAGR: 72/15 = 4.8 years to double
• At 18% CAGR: 72/18 = 4 years to double

This rule helps you quickly assess investment potential and set realistic expectations for wealth creation.

CAGR and simple average returns can give very different numbers. Here's why CAGR is more reliable:

Simple Average Example:

Year 1: +50% (₹100 → ₹150)

Year 2: -33% (₹150 → ₹100)

Simple Average: (50% - 33%) / 2 = 8.5%

But you ended up with the same ₹100 you started with!

CAGR for same example:

CAGR = (100/100)^(1/2) - 1 = 0%

The CAGR correctly shows 0% growth because your money didn't actually grow.

Key Differences:

• CAGR accounts for compounding and volatility
• Simple average ignores the sequence of returns
• CAGR represents actual realized returns
• Simple average can be misleading, especially with volatile investments

Understanding what different CAGR values mean for your investments:

Conservative (5-8% CAGR):

Typical of fixed deposits, bonds, and conservative debt funds. Suitable for capital preservation.

Moderate (8-12% CAGR):

Expected from balanced funds and blue-chip stocks over long periods. Good for steady wealth building.

Aggressive (12-18% CAGR):

Achievable through equity mutual funds and quality stocks over 5+ year periods. Suitable for long-term growth.

High Growth (18%+ CAGR):

Small-cap stocks, emerging markets, or concentrated bets. Higher risk, higher potential reward.

Benchmark Comparison:

• Nifty 50 historical CAGR: ~12-14% (15-20 years)
• S&P 500 historical CAGR: ~10-11% (long-term)
• Bank FD rates: ~6-7%

While CAGR is powerful, understand its limitations:

1. Ignores Volatility:

CAGR shows smooth growth but doesn't reflect the ups and downs along the way. Two investments with the same CAGR can have very different risk profiles.

2. Past Performance Caveat:

Historical CAGR doesn't guarantee future returns. Market conditions, economic factors, and investment characteristics change over time.

3. Doesn't Account for Cash Flows:

CAGR assumes a single investment at the start. For SIPs or investments with multiple cash flows, use XIRR instead.

4. Time Period Sensitivity:

CAGR can vary significantly based on chosen start and end dates. Cherry-picking periods can misrepresent performance.

5. Inflation Impact:

CAGR shows nominal returns. For real purchasing power growth, subtract inflation from CAGR.