How the CAGR Calculator works

CAGR (Compound Annual Growth Rate) is the smoothed, constant annual rate at which an investment would have grown if it had compounded steadily every year from its starting value to its ending value. Because it converts any total return into a per-year figure, it is the best single number for comparing investments held over different time periods.

Formula used

• Final Value = Value at the end of the period
• Initial Value = Value at the start
• t = Number of years

Worked example

If ₹1,00,000 grows to ₹2,00,000 over 5 years, CAGR = (2,00,000 / 1,00,000)^1/5 − 1 = 2^0.2 − 1 ≈ 14.87% per year. The absolute return is 100% (the money doubled), but spread over 5 years that works out to about 14.87% compounded annually. The chart shows this smooth 14.87%-a-year path from ₹1,00,000 to ₹2,00,000.

CAGR vs absolute return

Absolute return only tells you the total percentage gain and ignores time, so a 100% return over 2 years and over 10 years look identical. CAGR builds in the time period, which is why it is far more useful when comparing options.

Things to keep in mind

• CAGR assumes steady, smooth growth. Real investments rise and fall along the way, so the actual year-by-year returns can look very different even when the CAGR is the same.
• It only uses the start value, end value and time — it does not account for any money you added or withdrew in between. For regular contributions, use a SIP or XIRR-based measure instead.
• Because it hides volatility, always look at CAGR alongside the risk of the investment, not on its own.