What is CAGR?
CAGR (Compound Annual Growth Rate) is the rate at which an investment grows from its initial value to its final value, assuming the returns are reinvested at the end of each period. It is the single most widely used metric to compare investment performance over time.
Unlike simple average returns, CAGR smooths out year-to-year volatility. For example, if a mutual fund returns +50% one year and -25% the next, the simple average is +12.5%, but the actual CAGR is only about +6.07%. This makes CAGR a more realistic measure of real-world investment growth.
CAGR is used to compare mutual funds, stocks, real estate, fixed deposits, and any other investment across different time periods and initial amounts. If Nifty 50 delivered 15% CAGR over 10 years and your portfolio delivered 12%, you can immediately see you underperformed the benchmark.
CAGR Formula
CAGR = (Final Value / Initial Value) ^ (1 / Years) − 1
Example: ₹1,00,000 grows to ₹2,00,000 in 5 years
CAGR = (2,00,000 / 1,00,000) ^ (1/5) − 1 = 2^0.2 − 1 = 1.1487 − 1 = 14.87%
Frequently Asked Questions
What is CAGR and how is it calculated?
CAGR (Compound Annual Growth Rate) measures the mean annual growth rate of an investment over a specified period. Formula: CAGR = (Final Value / Initial Value)^(1/Years) - 1. For example, if ₹1 lakh grows to ₹2 lakh in 5 years, CAGR = (200000/100000)^(1/5) - 1 = 14.87%.
What is a good CAGR for investments in India?
A CAGR of 10–15% is considered good for equity mutual funds in India over a 10-year period. Large-cap funds typically deliver 10–12% CAGR, mid-cap 12–15%, and small-cap 15–20% (with higher risk). FDs offer 6.5–9% CAGR, which is lower but risk-free. The Nifty 50 has delivered approximately 12–13% CAGR over the last 20 years.
What is the difference between CAGR and absolute return?
Absolute return measures total percentage gain without considering time — if ₹1 lakh becomes ₹2 lakh, absolute return is 100% regardless of time taken. CAGR accounts for the time period: 100% gain in 5 years equals 14.87% CAGR, while 100% gain in 10 years equals only 7.18% CAGR. CAGR is a much better metric for comparing investments held for different periods.
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CalcBharat.com Finance Team
Investment & Wealth Planning Experts
CAGR values are calculated using the standard compounding formula. Benchmark CAGR figures are based on historical data and are not a guarantee of future returns. Last updated: April 2026.