CAGR formula
Example: ₹1,00,000 invested in a fund becomes ₹2,50,000 after 5 years. The absolute return is 150%, but the CAGR is 20.11% per year. That means the investment grew as if it earned 20.11% every single year, with the returns reinvested.
CAGR smooths out the ups and downs. A stock that went up 60% in one year and fell 20% the next did not earn 20% per year on average; its CAGR over the two years is about 13.1%.
CAGR = ( Final value ÷ Initial value )^(1 ÷ years) − 1
When to use CAGR
- Comparing two mutual funds or stocks held for different lengths of time.
- Checking the real growth of a property: a flat bought for ₹40 lakh and sold for ₹80 lakh after 12 years has a CAGR of only 5.9%.
- Measuring business growth: revenue growing from ₹2 crore to ₹5 crore in 4 years is a 25.7% CAGR.
- Setting a goal: if you need ₹1 crore from ₹25 lakh in 10 years, you need a 14.9% CAGR.
CAGR vs absolute return vs XIRR
| Measure | Best for | Limitation |
|---|---|---|
| Absolute return | Periods under one year | Ignores time, so cannot compare different durations |
| CAGR | One-time (lumpsum) investments | Assumes a single investment and a single exit |
| XIRR | SIPs and multiple cash flows on different dates | Needs the date and amount of every transaction |
If you invest through SIP, use our XIRR calculator instead; CAGR will overstate or understate the return because the money went in at different times.
Frequently asked questions
What is a good CAGR?
For Indian equity mutual funds, 12% to 15% over 10 years is considered good. Fixed deposits give 6% to 7.5%. Gold has delivered about 10% to 11% over the last 20 years. For a business, 20% plus is strong growth.
Can CAGR be negative?
Yes. If the final value is lower than the initial value, the CAGR is negative, which means the investment lost money on average each year.
Does CAGR include dividends?
Only if you include them in the final value. For mutual funds, use the growth option NAV or add the dividends received to the ending value.
How do I calculate CAGR in Excel?
Use the formula =(Final/Initial)^(1/Years)-1 or the RRI function: =RRI(years, initial, final). This calculator gives the same result without any formula.
Is CAGR the same as annualised return?
For a single lumpsum investment, yes. Annualised return and CAGR mean the same thing. For multiple investments, the correct annualised measure is XIRR.
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