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What Is CAGR?

CAGR stands for Compound Annual Growth Rate. It represents the constant annual growth rate that would turn a starting value into an ending value over a specified period, assuming annual compounding for the calculation.

CAGR formula

The basic formula is: CAGR = (Ending Value ÷ Beginning Value)^(1 ÷ Number of Years) − 1.

Example

If an investment grows from ₹1,00,000 to ₹2,00,000 over 5 years, CAGR expresses the equivalent annualized growth rate between those two values. It does not mean the investment actually increased by the same percentage every year.

CAGR vs absolute return

Absolute return tells you how much the investment gained relative to the starting amount. CAGR annualizes that growth over time, which makes it more useful when comparing investments held for different periods.

Limitations of CAGR

CAGR uses only the beginning value, ending value and time period. It does not describe the path taken between those points and is not designed for investments with multiple irregular cash flows.

When XIRR may be more appropriate

If you have multiple investments or withdrawals on different dates, XIRR can account for the timing of those cash flows.

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This guide is for educational purposes only. Calculator results are estimates based on the inputs and assumptions you provide and should not be treated as guaranteed returns or personalized financial advice.