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What is CAGR (Compound Annual Growth Rate)?
CAGR, short for Compound Annual Growth Rate, is a metric used to calculate the growth of an investment over a period of time (exceeding one year). CAGR smooths out fluctuations to offer a simple overview of how your investment grow year-on-year during the period of consideration, assuming your gains were reinvested at the end of each year.
In other words, it does not account for volatility and fluctuations in investment value over that tenure – instead, it provides a steady rate of return calculated retrospectively. This makes it easy to understand and help you assess the performance of your investment at a glance. It is also useful for comparing the performance of different investments.
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What is a CAGR calculator?
A CAGR or Compound Annual Growth Rate calculator is an online tool that helps you easily determine the compound annual growth rate of an investment. Instead of performing complex calculations manually, you can let the CAGR calculator do the work for you. All you need to input is the initial value, final value, and the investment duration. The calculator tells you the average annualised growth rate of your investment during that period.
Whether you’re assessing mutual funds, stocks, or other investments, a mutual fund CAGR calculator can save time and reduce errors, helping both beginners and seasoned investors make informed financial decisions.
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How does a CAGR calculator work?
A CAGR calculator requires you to input just a few basic details. Then, it applies the CAGR formula to give you instant results. Here is a breakdown:
| Input | Explanation |
|---|---|
| Initial investment amount | This is the starting value of the investment. |
| Current or final investment value | This represents the value of the investment at the end of the period. |
| Total years the investment was held | The time period for which the investment grew is a critical part of the formula. |
| Calculator applies CAGR calculation formula to estimate the Compound Annual Growth Rate of your investment. | |
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How to use the CAGR Calculator?
The CAGR Calculator is easy to use and requires just a few simple steps:
Step 1: Enter your initial investment amount (the lumpsum amount your invested at the start of your tenure)
Step 2: Enter your final investment value (the current value of your investment)
Step 3: Enter your tenure, or the number of years for which you held your investment
That’s it! The Compound Annual Growth Rate Calculator will apply CAGR formula to instantly estimate and display the annualised growth rate.
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How to calculate CAGR - CAGR formula
The CAGR calculation formula is:
CAGR = {[(Ending Value / Beginning Value) ^ (1/n)] – 1} * 100
Here, n represents the investment tenure.
For example, if you invested Rs. 5,000 and it grew to Rs. 10,000 over 5 years, this would be:
CAGR = {[(10,000/5,000) ^ 1/5)] – 1}*100
This comes to a CAGR of 14.87%, meaning your investment would have grown at an average rate of 14.87% each year to bring your corpus to Rs. 10,000 over five years.
Instead of manual calculations, a CAGR calculator simplifies this process, saving time and enhancing accuracy.
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Advantages of using CAGR calculator
Time saving
The tool applies the complicated CAGR formula and saves you the trouble of doing manual calculations.
Accuracy
It eliminates human errors in complex CAGR calculations to give you instant results.
Convenience
CAGR gives you a single number that can help you assess your investment growth and compare it to different avenues.
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Frequently Asked Questions
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Different types of investments offer different return potential – for instance, debt mutual funds typically offer lower returns than equity mutual funds. Hence, there is no inherent ‘good’ CAGR percentage. Instead, you may compare your investment returns against the benchmark and others in the category to see how your fund has performed in comparison to the market and its peers.
A 10% CAGR means the investment grew at an average rate of 10% per year, compounded annually.
CAGR is important because it provides a clear, consistent view of an investment’s growth, smoothing out volatility.
A 5-year CAGR reflects the annual growth rate of an investment over a 5-year period. A CAGR return calculator can help you independently assess this value. Data on investment returns is also regularly released by mutual fund houses and is available on several websites.
A Systematic Investment Plan (SIP) involves investing a fixed amount at regular frequencies – daily, weekly, monthly etc. FOR SIP, XIRR (Extended Internal Rate of Return) is a more accurate measurement as it calculates the return on an investment with multiple cashflows at different intervals. In comparison, CAGR only considers a beginning value and an ending value for its estimates. The XIRR formula in MS Excel is: “=XIRR(values, dates)”
- values: The range of cells that contains the cash flows.
- dates: The range of cells that contains the corresponding dates.
CAGR return is the annual growth percentage that an investment has achieved over time.
CAGR is a growth rate, not a ratio. However, it can be compared to other rates.
Yes, most mutual fund CAGR calculators online are free to use.
No, CAGR doesn’t account for risks. In fact, it smooths out volatility to give a single average annualised growth rate. Hence, it does not indicate how much the investment value may have fluctuated within that period.
CAGR measures uniform growth, while XIRR considers variable cash flows like SIPs.
You can find a CAGR calculation calculator on several financial platforms, including the AMC's website.
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Disclaimer: The calculator alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. This tool is created to explain basic financial /investment related concepts to investors. The tool is created for helping the investor take an informed decision and is not an investment process in itself. Mutual Fund does not provide guaranteed returns. Investors are advised to seek professional advice from financial, tax and legal advisor before investing.
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- Bajaj Finserv Asset Management Limited has been referred to as Bajaj Finserv AMC.
Copyright: All Rights reserved at Bajaj Finserv Asset Management Limited
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