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What is CAGR and Why Does it Matter?
When you evaluate the performance of your mutual funds, stock portfolio, or business revenues, looking at absolute growth can be misleading. That's where CAGR, or Compound Annual Growth Rate, comes in. It represents the smoothed annual rate at which an asset grows if it grows at a steady rate over the period.
For example, if you invest ₹10,000 and it becomes ₹25,000 in 5 years, you made a 150% absolute return. But how did it grow year-over-year? CAGR tells you that your investment grew at a rate of 20.11% compounded annually. This allows you to easily compare it against alternative assets like fixed deposits, PPF, or other mutual funds.
The Mathematical Formula
The math behind CAGR is: CAGR = (Final Value / Initial Value) ^ (1 / n) - 1, where n is the number of years. Doing exponent divisions manually is complex, which is why our free CAGR Calculator does the heavy lifting for you instantly.
Frequently Asked Questions
A good CAGR depends on the asset class. Historically, a CAGR of 12% to 15% in equity mutual funds over 5+ years is considered very strong, whereas fixed deposits yield around 6% to 7%.
Yes. If your final value is less than your initial investment, your CAGR will be negative, representing a compound annual loss.
No. CAGR assumes a single one-time investment at the start and a payout at the end. For staggered investments like SIPs, XIRR (Extended Internal Rate of Return) is the correct metric to use.