CAGR Calculator

The rate that actually happened

An investment that grew from ₹1,00,000 to ₹2,00,000 over five years doubled — a 100% absolute return. But the annual rate that produced it is 14.87%, not 20%. Dividing the total return by the number of years is the intuitive move and it is wrong, because it ignores that each year's growth builds on the previous year's result.

Compound annual growth rate is the constant rate which, applied every year, would take you from the starting value to the ending value. It is a smoothed figure — a way of saying "this performed as though it returned 14.87% every year," even though the actual path may have been +40%, −15%, +22%, −5%, +38%.

The formula

CAGR = ((Ending value ÷ Beginning value)^(1 ÷ years) − 1) × 100

Working the example: 2,00,000 ÷ 1,00,000 = 2. The fifth root of 2 is 1.1487. Subtract 1 and multiply by 100 to get 14.87%.

The fractional exponent is doing the work: it asks what number, multiplied by itself five times, gives 2. That is fundamentally different from dividing 100% by five, which asks what number *added* five times gives 100.

Verify it forward: 1,00,000 × 1.1487⁵ = ₹2,00,000. ✓

Why it beats an average return

Averaging annual returns systematically overstates performance whenever those returns vary, and the error grows with volatility.

Take a fund that gains 50% then loses 50%. The average is zero. But ₹100 becomes ₹150, then ₹75 — you are down 25%, and the CAGR is −13.4%. The average is arithmetically correct and practically useless, because it describes a sequence of percentages rather than what happened to your money.

This gap is why fund factsheets quote CAGR for periods beyond one year, and why any performance claim built on averaged annual returns deserves suspicion.

When to use it

Comparing investments with different horizons. A property held eleven years and a fund held four are not comparable on absolute return; CAGR normalises them to a per-year figure.

Checking a claim. Someone promising to double your money in three years is claiming a CAGR of about 26%, sustained. Naming that figure usually ends the conversation.

Setting expectations. Indian equity indices have delivered broadly 11–13% CAGR over multi-decade periods, with long stretches well above and below.

Measuring business growth. Revenue CAGR over three or five years is the standard way to describe a growth trajectory without being distracted by one unusual year.

What CAGR hides

It reports only the endpoints, so it is blind to everything in between. Two investments with an identical 14.87% CAGR may have had entirely different journeys — one rising steadily, the other falling 60% in year two before recovering. The second is far riskier and CAGR cannot distinguish them.

It is also blind to intermediate cash flows. If you added money along the way, as in a SIP, CAGR computed on start and end values is simply wrong. Use XIRR for that, which accounts for the timing and size of every contribution.

And it is sensitive to endpoint selection. A CAGR measured from a market bottom to a market peak flatters; one measured peak-to-trough damns. Whenever a period looks conveniently chosen, it usually was.

Common mistakes

Dividing total return by years. That is an average, not a CAGR, and it always overstates.

Using CAGR for a SIP. Multiple cash flows need XIRR.

Ignoring dividends. For a fund or stock paying out, CAGR on price alone understates the total return; use NAV of a growth plan, or add dividends back.

Comparing pre-tax CAGR against a post-tax alternative. A 12% equity CAGR and a 7% FD rate are not directly comparable until both are taxed.

Forgetting inflation. A 14.87% nominal CAGR during 6% inflation is a real CAGR of about 8.4%, computed as 1.1487 ÷ 1.06 − 1.