CAGR

Full form: Compound Annual Growth Rate

Investments

CAGR is the annualised return rate that smooths out year-to-year volatility to show consistent growth as if an investment had grown at a steady rate each year. It is the standard metric for comparing investment performance across different time periods.

In detail

CAGR answers: if an investment had grown at a constant rate, what would that rate be? A mutual fund delivering -20%, +40%, +15%, +8%, +12% over 5 years has a CAGR of approximately 9.7%.nnCAGR is correct for lumpsum investments. For SIP investments, XIRR is more appropriate. Nifty 50 CAGR since inception (1996): approximately 12-13% per year.

Formula

CAGR = (Final Value / Initial Value)^(1/n) - 1 Where n = number of years Reverse: Final Value = Initial x (1 + CAGR)^n Example: Rs 2L grew to Rs 6.5L in 10 years: CAGR = (6.5/2)^(1/10) - 1 = 12.48% per year

Real-life example

🇮🇳 India example

You invested Rs 2 lakh in 2014. In 2024 it is worth Rs 6.5 lakh. CAGR = (3.25)^0.1 - 1 = 12.48% per year. Nifty 50 10-year CAGR was approximately 13%. Your fund slightly underperformed the index.

Frequently asked questions

What is a good CAGR for mutual funds in India? ▼

Large-cap funds: 10-13% over 10 years is good. Mid-cap: 14-18%. Small-cap: 15-20% with higher risk. Index funds: approximately 12% historical 10-year CAGR. Above 15% for 10+ years is exceptional.

CAGR vs XIRR -- which should I use? ▼

CAGR for lumpsum investments where you invest once and hold. XIRR for SIP investments where you invest periodically. XIRR calculates the cash-flow-adjusted annualised return accounting for each installment date.