What is CAGR?
CAGR stands for compound annual growth rate. If an investment grew from ₹1 lakh to ₹2.5 lakh over 5 years, it did not grow by the same amount each year. CAGR tells you the single yearly rate that would take you from the starting value to the ending value, as if growth had been smooth.
Worked example
When to use CAGR, and when not to
- Good for: comparing a lump sum investment across funds, stocks, gold or property over the same period.
- Not for: SIPs or investments with many deposits and withdrawals. Use XIRR for those.
- Remember: CAGR hides the ups and downs along the way. Two funds with the same CAGR can feel very different to hold.
Frequently asked questions
What is a good CAGR?
It depends on the asset. Over long periods, Indian equity indices have given roughly 10% to 12%, gold about 8% to 10%, and fixed deposits about 6% to 7%. Compare with inflation too, since real growth is CAGR minus inflation.
What is the difference between CAGR and absolute return?
Absolute return is the total growth over the whole period, such as 150%. CAGR converts that into a yearly rate, so you can compare investments held for different lengths of time.
Can CAGR be negative?
Yes. If the final value is lower than the starting value, CAGR is negative and shows the average yearly loss.
Is CAGR the same as XIRR?
No. CAGR works for one starting amount and one ending amount. XIRR handles several deposits or withdrawals on different dates, such as a monthly SIP.
How do I use this for a mutual fund?
Enter the fund’s NAV (or your investment) at the start as the starting value, today’s value as the final value, and the number of years between them.