CAGR (Compound Annual Growth Rate) is a measure of the mean annual growth rate of an investment over a specified time period, assuming the investment was compounded annually. CAGR smooths out the volatility and provides a single annual growth rate that represents the investment's performance over the entire period. It's one of the most widely used metrics in finance for comparing investment performance.
CAGR is useful for comparing different investments over various time periods. It helps investors understand the true annualized return of an investment, regardless of market volatility. CAGR is particularly valuable when comparing mutual funds, stocks, or other investments that have experienced different growth patterns. For comprehensive investment planning, check our SIP calculator, Step-Up SIP calculator, retirement calculator, or inflation calculator to understand real returns.
The CAGR formula is: CAGR = ((Final Value / Initial Value)^(1/Years) - 1) × 100. This calculation assumes that the investment grows at a constant rate each year, which may not reflect actual year-to-year performance but provides a standardized way to compare investments. CAGR is widely used in finance for portfolio analysis and investment decision-making. It's particularly useful when comparing investments with different timeframes or when analyzing long-term performance.
CAGR helps investors make informed decisions by providing a single percentage that represents average annual growth. However, it's important to note that CAGR doesn't account for volatility or risk. An investment with higher volatility may have the same CAGR as a more stable investment, but carries different risk characteristics. Always consider risk-adjusted returns and use CAGR alongside other metrics like Sharpe ratio, alpha, and beta. For more information on investment analysis and portfolio management, refer to SEBI (Securities and Exchange Board of India) guidelines.
Input the starting investment amount. This is the value at the beginning of the investment period.
Input the ending investment value. This is the value at the end of the investment period after all growth.
Enter the time period in years between the initial and final values. You can use decimals for partial years.
Click "Calculate CAGR" to compute the compound annual growth rate and see detailed results.
Review the CAGR percentage, total return, and absolute return to understand your investment performance.
Use CAGR to compare different investments or time periods. Higher CAGR indicates better performance.
CAGR (Compound Annual Growth Rate) is the mean annual growth rate of an investment over a specified period, assuming constant compounding. It's important because it provides a standardized way to compare investments with different time periods or growth patterns. CAGR smooths out volatility and gives you a single percentage that represents average annual performance, making it easier to evaluate and compare different investment options.
CAGR and total return measure different aspects of investment performance:
Yes, CAGR can be negative if the final value is less than the initial value. This indicates that the investment lost value over the period. A negative CAGR means the investment declined at that annual rate on average. For example, if ₹1,00,000 becomes ₹80,000 over 3 years, the CAGR would be approximately -7.2% per year.