What is CAGR? Compound Annual Growth Rate (CAGR) is the rate at which an investment grows from its beginning value to its ending value — assuming profits are reinvested each year. Unlike simple average returns, CAGR accounts for compounding, making it the most accurate single-number representation of investment performance over time.
For example, if your ₹1 lakh grew to ₹2 lakh in 5 years, the absolute return is 100% — but the CAGR is just 14.87% per year. Our CAGR Calculator instantly computes this for any investment.
How CAGR Is Calculated
CAGR uses the beginning value, ending value, and number of years to compute the geometric mean return. It completely ignores the ups and downs between start and end — it only cares about where you started and where you ended.
CAGR = (Ending Value / Beginning Value)^(1/n) - 1Where:
- • Ending Value: Final value of investment at redemption
- • Beginning Value: Initial investment / purchase value
- • n: Number of years the investment was held
- • Example: ₹1,00,000 → ₹2,75,000 in 5 years → CAGR = (2.75)^(1/5) - 1 = 22.4%
- Accurate Cross-Asset Comparison: Compare a 3-year stock return vs a 7-year FD return on equal footing — CAGR normalises both to annual %.
- Smoothes Volatility: A stock that went +50%, -20%, +30% over 3 years has an average of 20% — but CAGR shows the true 14.4% annual growth.
- Global Standard: Mutual fund NAV returns, stock screener returns, and AMC performance reports all use CAGR as the baseline metric.
- Reverse Calculation: You can also use CAGR in reverse — enter a starting amount, ending target, and years to find what CAGR you need to achieve your goal.
Example: CAGR vs Misleading Average Return
Suraj invests ₹1 Lakh in a volatile stock:
• Year 1: +50% → ₹1,50,000
• Year 2: -20% → ₹1,20,000
❌ Average Return = (50% - 20%) ÷ 2 = 15% (Misleading — implies you should have ₹1,32,250)
✅ Actual CAGR = (1,20,000 / 1,00,000)^(1/2) - 1 = 9.54%
CAGR reveals that despite a 15% average, the actual annual gain was only 9.54% — because losses hit harder than gains recover.
CAGR vs Absolute Return vs XIRR: Which to Use?
Choosing the right return metric matters — each has a specific use case:
| Metric | Best Used For | Handles Multiple Investments? | Accounts for Time? |
|---|---|---|---|
| Absolute Return | Short-term, single investment return % | ❌ No | ❌ No |
| CAGR | Lumpsum single-investment over time | ❌ No | ✅ Yes |
| XIRR | SIPs, multiple cash flows, irregular investments | ✅ Yes | ✅ Yes (exact dates) |
| IRR | Business projects, real estate cash flows | ✅ Yes | ✅ Yes (periodic) |
Frequently Asked Questions
⚠️ Disclaimer
The figures provided by this calculator are estimates based on the inputs you provide and standard financial formulas. STOCKCALC.IN does not offer investment advice. Please consult a qualified financial advisor before making any investment decisions.