The Compound Annual Growth Rate (CAGR) shows the annualised growth rate between an investment’s starting value and ending value. Use this calculator to measure historical growth or estimate the annual growth rate required to reach a financial target.
CAGR is a mathematical estimate based on the values and period entered. It does not show the actual ups and downs during the investment period and does not guarantee future returns. This calculator assumes one starting value and one ending value.
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ToggleWhat Is CAGR?
CAGR stands for Compound Annual Growth Rate. It represents the constant annual growth rate that would take an initial value to a final value over a specified period, assuming annual compounding.
Investors use CAGR to review the historical growth of a lump sum investment, while businesses may use it to measure changes in revenue, sales or other financial metrics. CAGR makes it easier to compare growth over different periods, although the comparison is most useful when the periods and underlying risks are also considered.
How to Calculate CAGR
The formula is:
CAGR = [(Final Value ÷ Initial Value)1 ÷ Number of Years − 1] × 100
For example, suppose an investment grows from ₹1,00,000 to ₹2,00,000 over six years. Its CAGR is approximately 12.25%. This means a constant annual growth rate of about 12.25% would produce the same ending value over that period. It does not mean the investment actually earned 12.25% in every year.
CAGR vs Absolute Return
Absolute return measures the total percentage increase or decrease between the starting value and ending value. CAGR converts that overall change into an annualised compounded rate.
For example, doubling an investment represents a 100% absolute return whether it takes one year or ten years. However, the CAGR is about 100% over one year and 7.18% over ten years. The two measures answer different questions.
CAGR vs XIRR
| Metric | Best Used For | Multiple Cash Flows |
|---|---|---|
| CAGR | A single initial investment and a final value | No |
| XIRR | SIPs, additional investments and withdrawals on different dates | Yes |
| Absolute Return | The overall percentage gain or loss | Does not account for cash flow timing |
If you invested a lump sum once and want to measure its growth, CAGR may be suitable. If you made monthly SIP contributions, additional investments or withdrawals, use XIRR because each cash flow has a different investment period.
What Is a Good CAGR?
There is no single CAGR that is good for every investment. The result depends on the asset, investment period, market conditions, risk, costs and taxes. A return that is reasonable for one type of investment may not be appropriate for another.
Instead of relying on fixed return ranges, compare the CAGR with a relevant benchmark over the same period. For mutual funds, consider the fund category, benchmark performance and risk. For fixed deposits, consider the applicable interest rate and tenure. For property, include relevant costs before drawing conclusions.
Historical CAGR is not a forecast. A high past growth rate does not guarantee that an investment will continue growing at the same pace.
How to Find the CAGR Required for a Financial Goal
Select “Find Required CAGR” in the calculator. Enter your current amount as the initial value, your desired target as the final value and the number of years available. The calculator estimates the annualised growth rate needed to reach that target.
The result is a mathematical target, not a promise that an investment can deliver that return. If the required rate is high, you may need to review your savings amount, goal date or target value rather than assuming that higher investment risk will solve the gap.
Frequently Asked Questions
Ans. CAGR means Compound Annual Growth Rate. It is the annualised rate at which an initial value would need to grow through compounding to reach a final value over a specified period.
Ans. Divide the final value by the initial value, raise the result to the power of one divided by the number of years, subtract one and multiply by 100 to express the result as a percentage.
Ans. Absolute return measures the total percentage gain or loss over the full period. CAGR expresses the change as an annualised compounded rate, so it accounts for the length of the period.
Ans. CAGR is not the best measure for a regular SIP because each instalment is invested on a different date. XIRR is generally more suitable because it accounts for the timing and amount of each cash flow.
Ans. Yes. If the final value is lower than the initial value, CAGR will be negative. It represents an annualised decline over the period entered.
Ans. There is no universal good CAGR. It depends on the investment type, risk and time period. Compare the result with an appropriate benchmark over the same period and remember that past returns do not guarantee future performance.
Ans. You can review both figures, but different periods may reflect different market conditions. For a more meaningful comparison, calculate CAGR over the same start and end dates where possible, and consider risk and costs as well.
Ans. Select “Find Required CAGR,” enter the starting amount, target amount and number of years. The calculator estimates the annualised compounded growth rate needed to reach the target, assuming no additional contributions or withdrawals.
Ans. No. CAGR summarises growth between two values but does not measure volatility, losses during the period or the risk of future declines. Review risk, costs and other relevant measures before making an investment decision.
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