Imagine this: Your mutual fund portfolio shows a 50% total return in 3 years. Sounds amazing, right? But does that mean you earned 16.6% per year (50 ÷ 3)?
NO. That is the biggest lie in investing. The real annual growth is actually much lower. This is where CAGR (Compound Annual Growth Rate) comes in.
What you will learn:
1. What is CAGR?
CAGR stands for Compound Annual Growth Rate. It is the mean annual growth rate of an investment over a specified time period longer than one year.
In simple words: It tells you "If my investment grew at a steady rate every single year, what would that rate be?" It smooths out the volatility (ups and downs) of the market to give you one single, accurate percentage.
2. Absolute Return vs CAGR (The Trap)
Most beginners look at Absolute Return. Smart investors look at CAGR. Here is why:
| Scenario | Absolute Return | CAGR (Real Growth) |
|---|---|---|
| Money doubles in 1 Year | 100% | 100% |
| Money doubles in 5 Years | 100% | 14.87% |
| Money doubles in 10 Years | 100% | 7.18% |
See the difference? A 100% return looks great, but if it took 10 years to achieve, your annual growth is only 7%, which is barely beating inflation!
3. The Mathematical Formula
How do analysts calculate this? Here is the magic formula used by our tool:
EV
Ending ValueBV
Beginning Valuen
Number of Years4. How to use our CAGR Calculator?
You don't need a scientific calculator. Just use our free online tool:
- Initial Value: Enter the amount you started with (e.g., ₹1,00,000).
- Final Value: Enter the current value of your investment (e.g., ₹2,50,000).
- Duration: Enter the time period in years (e.g., 5 Years).
The tool will instantly process the exponents and give you the precise annual percentage.
5. What is a "Good" CAGR?
This depends on the asset class. Here is a general benchmark for Indian markets:
- Large Cap Stocks/Funds: 10% - 12%
- Mid Cap Funds: 12% - 15%
- Small Cap Funds: 15% - 20% (High Risk)
- Real Estate: 8% - 10%
- Gold: 8% - 9%