How to Use the CAGR Calculator
- 1 Enter Initial Value: Input the starting value of your investment (purchase price or opening balance).
- 2 Enter Final Value: Input the current value, maturity amount, or selling price of your investment.
- 3 Set Time Period: Specify the investment duration in years (can be decimal for partial years).
- 4 View Results: Instantly see your CAGR, total returns, doubling time, and growth projections with interactive sliders.
Pro Tip: Use the sliders for quick adjustments or type exact values for precision. The calculator updates in real-time as you adjust inputs.
What is CAGR? Understanding Compound Annual Growth Rate
CAGR (Compound Annual Growth Rate) is the rate of return required for an investment to grow from its initial value to its final value over a specified time period, assuming profits are reinvested at the end of each period.
Unlike simple returns that can be misleading, CAGR provides a "smoothed" annualized rate that removes the volatility and gives you a clear picture of investment performance. It's the gold standard metric used by financial professionals worldwide.
Why CAGR Matters for Indian Investors
- Apples-to-Apples Comparison: Compare mutual funds, stocks, gold, and real estate on equal footing, regardless of holding period.
- Benchmarking: Measure your portfolio against indices like Nifty 50 (historical CAGR: ~12%) or Sensex (~13%).
- Inflation Adjustment: With India's average inflation at 6%, a CAGR below this means your purchasing power is declining.
- True Performance: A 50% return sounds impressive, but if it took 10 years, that's only 4.1% CAGR - below inflation!
- Volatility Smoothing: Your investment may fluctuate wildly year-to-year, but CAGR gives you the average annualized growth rate.
The CAGR Formula Explained
CAGR = [(Final Value / Initial Value)^(1 / Number of Years)] - 1
Components:
₹ Final Value (FV): Current/ending value of investment
₹ Initial Value (IV): Starting value of investment
₹ Number of Years (n): Duration of investment
₹ ^ (Power): Exponential calculation for compound growth
Example Calculation
Scenario: You invested ₹1,00,000 in a mutual fund. After 5 years, it's worth ₹2,50,000.
Calculation:
CAGR = [(2,50,000 / 1,00,000)^(1/5)] - 1CAGR = [2.5^0.2] - 1CAGR = 1.2011 - 1 = 0.2011CAGR = 20.11%
📊 Result: Your investment grew at an impressive 20.11% annually - well above Nifty 50's historical average!
CAGR Benchmarks: What's a Good Return?
| Investment Type | Typical CAGR (10+ years) | Risk Level | Verdict |
|---|---|---|---|
| Savings Account | 3-4% | Zero Risk | ⚠️ Below Inflation |
| Fixed Deposit (FD) | 6-7% | Very Low | 📊 Barely Beats Inflation |
| PPF / EPF | 7-8% | Zero Risk | ✅ Safe, Tax-Free |
| Gold | 8-10% | Medium | 📈 Volatile, No Cash Flow |
| Real Estate | 8-10% | High | 🏠 Illiquid, Location-Dependent |
| Nifty 50 Index | 12-14% | Medium-High | 📊 Benchmark for Equity |
| Large Cap Mutual Funds | 10-12% | Medium | ✅ Good for Stability |
| Mid & Small Cap Funds | 15-20% | High | High Risk, High Reward |
Key Insight: To beat inflation and build wealth, target a minimum CAGR of 10% over 10+ years. Equity and equity mutual funds are the only asset class to consistently achieve this.
CAGR vs Absolute Return vs XIRR
1. CAGR vs Absolute Return
Absolute Return is the simple percentage gain/loss without considering time.
Formula: [(Final Value - Initial Value) / Initial Value] ₹ 100
Example: ₹1L becomes ₹2L = 100% Absolute Return
⚠️ The Problem: 100% in 2 years is amazing, but 100% in 20 years is terrible. Absolute return hides the time factor.
✅ Solution: Always use CAGR for multi-year investments to understand annualized performance.
2. CAGR vs XIRR (When to Use Which)
| Use CAGR When... | Use XIRR When... |
|---|---|
| ✅ Single lump-sum investment | ✅ SIP/STP (multiple investments) |
| ✅ Point-to-point returns (Buy → Sell) | ✅ Irregular cash flows (deposits/withdrawals) |
| ✅ Comparing funds/stocks over same period | ✅ Real-world portfolio with timing differences |
| ❌ SIP investments | ❌ Lump-sum investments |
Rule of Thumb: One investment = CAGR. Multiple investments at different times = XIRR.
⚠️ Limitations of CAGR (What It Doesn't Tell You)
-
Ignores Volatility: A 15% CAGR doesn't mean your investment grew 15% every year. It could be +50% one year, -20% the next, +30% after that. CAGR smooths out the bumpy ride.
Impact: You might experience years of negative returns even if your CAGR is positive. This is especially true for mid-cap and small-cap funds.
-
Not for SIPs: CAGR assumes a one-time investment. If you invested ₹10K every month for 5 years, CAGR will give you incorrect results.
Solution: Use XIRR Calculator for SIP investments.
-
Timing Matters: If you calculate CAGR during a market crash, it will be lower. During a bull market, it will be higher. CAGR is sensitive to entry and exit timing.
Best Practice: Calculate CAGR over full market cycles (10+ years) for accurate assessment.
-
Doesn't Account for Additions/Withdrawals: If you added or withdrew money during the period, CAGR becomes meaningless.
Solution: Use XIRR for portfolios with interim cash flows.
🧮 Rule of 72: Quick Doubling Time Calculator
The Rule of 72 is a simple mental shortcut to estimate how long it takes for your money to double at a given CAGR.
Doubling Time (Years) = 72 / CAGR
Quick Reference Table
| CAGR | Doubling Time | ₹1L Becomes... |
|---|---|---|
| 6% | 12 years | ₹2L in 12 yrs, ₹4L in 24 yrs |
| 8% | 9 years | ₹2L in 9 yrs, ₹4L in 18 yrs |
| 10% | 7.2 years | ₹2L in 7.2 yrs, ₹4L in 14.4 yrs |
| 12% | 6 years | ₹2L in 6 yrs, ₹4L in 12 yrs |
| 15% | 4.8 years | ₹2L in 4.8 yrs, ₹4L in 9.6 yrs |
| 18% | 4 years | ₹2L in 4 yrs, ₹4L in 8 yrs |
💡 Actionable Insight: If you want to double your money in 6 years, you need investments that deliver 12% CAGR. This is why equity mutual funds are essential for long-term wealth creation.
❓ Frequently Asked Questions (FAQ)
What is a good CAGR for mutual funds in India?
For Large Cap funds, a CAGR of 10-12% over 5+ years is considered good. For Mid and Small Cap funds, investors often target 15-20% CAGR, though this comes with higher volatility. Any CAGR above 12% consistently beats the Nifty 50 benchmark.
Can CAGR be negative?
Yes, CAGR can be negative if your final value is less than your initial investment. A negative CAGR indicates your portfolio has lost value on an annualized basis. For example, if ₹1,00,000 becomes ₹80,000 in 3 years, your CAGR is approximately -7.2%.
Is 20% CAGR realistic for long-term investments?
While 20% CAGR is achievable in short bursts (2-5 years) during bull markets, it's not sustainable over 15-20 years. Historical data shows that even the best-performing equity funds average 15-18% CAGR over very long periods. Be wary of funds or stocks promising consistent 20%+ returns - high returns come with high risk.
How does CAGR help in retirement planning?
CAGR is critical for retirement planning. If you need ₹2 Cr in 20 years and have ₹20 Lakh today, you need a CAGR of 12.2%. This helps you choose the right asset allocation - equity-heavy for higher CAGR, or balanced with debt for stability. Use our Retirement Calculator to plan better.
Should I calculate CAGR with or without dividends?
Always calculate CAGR with dividends reinvested for an accurate picture. Dividends are part of your total return. Most fund houses report "Total Return" CAGR which includes dividends. For stocks, add dividend income to your final value before calculating CAGR.
Disclaimer: This calculator provides estimates based on the inputs you provide. Past performance (CAGR) does not guarantee future results. Investment returns are subject to market risks. Always consult a certified financial advisor before making investment decisions. CalcScope is a financial education tool, not a SEBI-registered investment advisor.