CAGR, or Compound Annual Growth Rate, expresses the growth of an investment as a single smoothed annual percentage, as if it had grown at a constant rate every year, even though real investments rarely move in a straight line. It’s the standard way to compare returns across different mutual funds, stocks or time periods on an apples-to-apples basis.
Enter the initial value, the final value, and the number of years between them to calculate the CAGR, along with the absolute (total) percentage growth and the total rupee gain.
CAGR Calculator
Find the compound annual growth rate between two investment values.
CAGR smooths returns into a single annual rate and does not reflect the actual year-to-year volatility of the investment.
How CAGR is calculated
CAGR = [(Final Value / Initial Value)^(1/n)] − 1, expressed as a percentage, where n is the number of years. Because it’s a geometric average rather than a simple average, CAGR correctly accounts for compounding, which is why it’s preferred over a plain average of annual returns when comparing investments.
CAGR vs absolute return
Absolute return just tells you the total percentage gain over the entire period, regardless of how long it took. Two investments with the same absolute return but different time periods will have very different CAGRs — a 50% gain in 2 years is a much stronger CAGR than the same 50% gain spread over 8 years, which is why CAGR is the more useful figure for comparing investments held for different durations.
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Frequently asked questions
Is CAGR the same as annualised return?
Yes, CAGR is one common way to express annualised return — it’s the constant yearly growth rate that would take the initial value to the final value over the given period.
Does CAGR account for volatility or drawdowns along the way?
No. CAGR only looks at the start and end values, so it doesn’t show how bumpy the ride was in between — two investments can have identical CAGR with very different risk profiles.
Can CAGR be negative?
Yes, if the final value is lower than the initial value, CAGR will be negative, reflecting an overall loss annualised over the period.