CAGR Calculator

CAGR (Compound Annual Growth Rate) is the annualized rate at which an investment would have grown if it grew at a steady rate every year. It smooths out all the volatility and gives you a single, comparable annual number. If your mutual fund went up 30% in year 1, down 15% in year 2, and up 20% in year 3, CAGR tells you what constant rate would have produced the same final value.

CAGR is the standard metric for comparing investments of different durations or with different volatility patterns. A 5-year FD at 7% has a CAGR of 7% (by definition). A stock that went from ₹100 to ₹200 in 4 years has a CAGR of 18.9% (not 25%, which would be the simple average). The difference matters when you're comparing apples to oranges.

The formula is: CAGR = (End Value / Begin Value)^(1/n) − 1, where n is the number of years. The exponent (1/n) reverses the compounding — it extracts the equivalent constant growth rate from start and end values.

The single biggest mistake investors make when evaluating returns is using the arithmetic average of yearly returns. This metric overstates actual returns because it ignores compounding and volatility — a phenomenon called 'volatility drag'.

Example: An investment goes up 50% in year 1, then down 50% in year 2. The arithmetic average return is 0% ((50 − 50) ÷ 2). But you actually lost money: ₹100 → ₹150 → ₹75. That's a 25% loss over 2 years, or a CAGR of −13.4%.

The mathematical reason: losses hurt more than equivalent gains help. A 50% loss requires a 100% gain to recover. This asymmetry means volatility always reduces the effective return below the arithmetic average. CAGR captures the true, volatility-adjusted growth rate.

CAGR is best used to compare the historical performance of different asset classes over long periods. A Nifty 50 index fund with a 10-year CAGR of 13% has clearly outperformed an FD at 7% CAGR. A stock with a 5-year CAGR of 25% has been outstanding — but you should check whether the outperformance is due to a single exceptional year or consistent strength.

CAGR also lets you sanity-check investment pitches. If someone claims their strategy produces 30% annual returns, ask for the CAGR. In most cases, the impressive-sounding returns are inflated by using arithmetic average, or by cherry-picking a favorable time period.

The limitation of CAGR: it hides volatility and path dependence. Two investments with the same CAGR can have very different risk profiles. A stable 12% CAGR is preferable to a volatile one where returns swing from +50% to −30% — even if both end at the same value. Always pair CAGR with a volatility measure (standard deviation, maximum drawdown) before making decisions.