What is CAGR?
CAGR stands for compound annual growth rate. It answers a simple question: if something had grown at the same steady rate every year, what would that rate be? Real investments rarely grow smoothly – they jump up one year and fall the next – but CAGR smooths the whole journey into one yearly number. That makes it easy to compare a mutual fund, a stock, a property, or a company's sales over different time periods.
The CAGR formula
CAGR = (Ending value ÷ Starting 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 = 20.2 − 1 ≈ 14.87% a year.
To go the other way – from a growth rate to a future value – use Future value = Starting value × (1 + CAGR)years. For example, ₹1,00,000 at 12% for 10 years grows to about ₹3,10,585.
CAGR vs absolute return vs average return
- Absolute return is the total gain: ₹1 lakh to ₹2 lakh is a 100% return, however long it took.
- Simple average would split that 100% over 5 years as "20% a year" – which overstates it, because it ignores compounding.
- CAGR gives the true steady rate: 14.87% a year, compounded, turns ₹1 lakh into ₹2 lakh in 5 years.
Averages can mislead even more when returns go up and down. Suppose ₹100 rises 50%, then falls 40%, then rises 50%, ending at ₹135. The average of the yearly returns is 20%, but the CAGR is only about 10.5% – the number that matches what really happened to your money. Read more in our guide: What is CAGR?
Doubling time and the rule of 72
A quick shortcut: divide 72 by the growth rate to estimate how many years it takes for money to double. At 12% a year, money doubles in about 72 ÷ 12 = 6 years; at 8%, about 9 years. The calculator also shows the exact doubling time.
Frequently asked questions
How do I calculate CAGR?
Divide the ending value by the starting value, raise the result to the power of 1 divided by the number of years, and subtract 1. Multiply by 100 for a percentage.
What is a good CAGR?
It depends on the asset and the risk. Compare CAGR with inflation and with similar investments over the same period, rather than using one fixed number.
Can CAGR be used for SIP investments?
CAGR suits a single starting amount. For regular monthly investments like SIPs, a measure called XIRR is more accurate because each instalment is invested for a different length of time.
Can CAGR be negative?
Yes. If the ending value is lower than the starting value, the CAGR is negative, showing the average yearly loss.