What Is CAGR? How to Calculate It (With Examples)

Mutual fund factsheets, company reports and property ads all love one number: CAGR. "This fund delivered 14% CAGR over five years." "Sales grew at a CAGR of 20%." It sounds technical, but the idea is simple – and once you understand it, you can quickly see through misleading return claims and compare investments fairly. This guide explains what CAGR means, how to calculate it by hand, where it's useful, and where it can fool you.

CAGR in one sentence

CAGR (compound annual growth rate) is the steady yearly growth rate that would take you from the starting value to the ending value over the same number of years. Real growth is bumpy; CAGR pretends it was smooth, so you can compare different journeys with one number.

How to calculate CAGR

CAGR = (Ending value ÷ Starting value)1 ÷ n − 1, where n is the number of years.

Example 1: an investment that doubled

You invested ₹1,00,000 and it became ₹2,00,000 after 5 years.

1. Divide: 2,00,000 ÷ 1,00,000 = 2.
2. Take the 5th root (power of 1/5): 2^0.2 ≈ 1.1487.
3. Subtract 1: 0.1487, or 14.87% a year.

Example 2: a shorter period

₹50,000 grows to ₹80,000 in 3 years: (80,000 ÷ 50,000)^1/3 − 1 = 1.6^0.333 − 1 ≈ 16.96% a year.

On a phone calculator without a power button, it's easiest to use our calculator – but it's good to know what it is doing.

Why CAGR beats "average return"

Two common mistakes make returns look better than they were:

• Dividing total return by years. ₹1 lakh to ₹2 lakh is a 100% total return. "100% ÷ 5 = 20% a year" sounds right, but 20% compounded for 5 years would give ₹2.49 lakh, not ₹2 lakh. The honest figure is the CAGR of 14.87%.
• Averaging yearly returns. Suppose ₹100 grows 50% (to ₹150), falls 40% (to ₹90), then grows 50% (to ₹135). The average of +50%, −40% and +50% is 20% – yet ₹100 became only ₹135 in three years. The CAGR is about 10.5%, which is what you actually earned.

Losses hurt more than gains help: after a 40% fall, you need a 67% rise just to get back to where you started. CAGR captures this automatically.

Where CAGR is useful

• Comparing investments held for different periods – a 3-year and a 7-year result become comparable.
• Checking claims like "my flat doubled in value" – over 10 years, doubling is only about 7.2% a year.
• Business growth – revenue, users or profit over several years.
• Planning – using an assumed CAGR to estimate a future value, for example ₹1 lakh at 12% for 10 years ≈ ₹3.1 lakh.
• Comparing with inflation – an investment's CAGR should beat inflation over the same period to grow your real wealth. See how inflation affects your money.

Where CAGR can mislead

• It hides the ride. A fund with 12% CAGR may have fallen 30% in one year along the way. CAGR says nothing about risk or volatility.
• It depends on the dates. Starting just before a crash or just after one gives very different CAGRs for the same investment. Look at several periods.
• It's not for regular investments. For SIPs, each monthly instalment is invested for a different time, so CAGR on the total isn't accurate. Use XIRR, which most fund apps and statements show.
• Very short periods (under a year) give "annualised" numbers that can look extreme and aren't meaningful.

The rule of 72

A handy mental shortcut: 72 ÷ growth rate ≈ years to double. At 6% money doubles in about 12 years, at 8% in 9 years, and at 12% in about 6 years. It works in reverse too: if something doubled in 10 years, its CAGR was roughly 72 ÷ 10 ≈ 7.2%.

Frequently asked questions