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CAGR
Compound Annual Growth Rate
The steady yearly rate that would take an investment from its start value to its end value.
Detailed explanation
Real returns are lumpy — up 30% one year, down 12% the next. CAGR smooths that path into one annualised number so two investments held for different periods can be compared fairly. It ignores volatility and any money added or withdrawn along the way.
Formula
CAGR = (Ending value / Beginning value)^(1 / years) − 1
Example
₹1,00,000 grows to ₹2,00,000 in 6 years. CAGR = (2)^(1/6) − 1 = 12.25% per year.
Why it matters
Fund factsheets, stock screeners and index comparisons all quote CAGR. Reading it correctly stops you from being impressed by a big absolute gain that took fifteen years.
Key points
- Only valid for a single lump sum with no cash flows in between.
- Use XIRR instead when you invest or withdraw periodically.
- It hides drawdowns — two funds with the same CAGR can feel very different.
Related tool
CAGR calculatorRelated terms
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Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.