What is CAGR and why is it important?

CAGR stands for Compound Annual Growth Rate. It provides a constant rate of return over a time period, smoothing out the fluctuations in year-to-year returns. It is the most accurate way to measure the growth of an investment over time because it accounts for compounding.

How is CAGR different from Absolute Return?

Absolute Return only shows the total percentage gain or loss, ignoring the time taken. CAGR tells you the average annual growth. For example, 100% return in 5 years is great (14.87% CAGR), but 100% in 15 years is poor (4.73% CAGR).

What is a good CAGR for stock market investments in India?

For the Indian stock market (Nifty 50), a long-term CAGR (10+ years) of 12-15% is considered healthy. Anything above 15% is excellent but often comes with higher volatility.

Can CAGR be negative?

Yes, if the final value of your investment is lower than the initial investment, the CAGR will be negative, indicating a compound annual loss.

How do taxes affect CAGR?

Taxes reduce your final corpus, thereby lowering your effective CAGR. For example, a 15% pre-tax CAGR might become a 13.5% post-tax CAGR after accounting for LTCG (12.5% on equity).

What is the difference between CAGR and XIRR?

CAGR is used for a single investment (lumpsum) held for a specific period. XIRR is used when you have multiple cash flows (SIPs, dividends, or partial withdrawals) at different time intervals. XIRR is essentially the CAGR of a series of cash flows.

How do I calculate CAGR for a business?

The formula is the same: [(Final Revenue / Initial Revenue)^(1/n)] - 1. It helps business owners understand the smoothed-out growth rate of their sales or users over several years, removing seasonal or monthly fluctuations.

CAGR Calculator

By MySIPCalc Editorial | Last Updated: May 2026

Calculate compound annual growth rate or find future value

Initial Investment

₹

₹1,000₹1 Cr

Final Value

₹

₹1,00,000₹5 Cr

Investment Period

1 Yr30 Yr

Your CAGR is

15.6%

Annual growth rate over 7 years

Benchmark Comparison

Understanding CAGR (Compound Annual Growth Rate)

CAGR is the gold standard for measuring investment performance. While absolute returns show you the total profit, they ignore the most critical factor: Time. CAGR tells you the average annual growth rate of an investment over a specified period, assuming the profits were reinvested each year.

Lumpsum Investments

CAGR is the perfect tool for evaluating point-to-point performance of stocks, mutual funds, or real estate over multiple years.

Business Strategy

CEOs use CAGR to track revenue or user growth trends, smoothing out year-on-year volatility to see the true trajectory.

How to Calculate CAGR Manually

While our calculator handles the math, understanding the formula helps you make better decisions:

              CAGR = [(Final Value / Initial Value)(1 / n) - 1] * 100
            

Example: You invested ₹1,00,000 in a stock and it grew to ₹2,50,000 in 5 years.

Step 1: Divide Final by Initial (2.5 / 1 = 2.5)
Step 2: Raise 2.5 to the power of (1/5) = 1.2011
Step 3: Subtract 1 and multiply by 100 = 20.11% CAGR

CAGR vs. Absolute Return: The "Time" Factor

Absolute return can be deceptive. A 100% return sounds amazing, but:

100% in 5 years = 14.87% CAGR (Excellent)
100% in 10 years = 7.18% CAGR (Average)
100% in 15 years = 4.73% CAGR (Below Inflation)

Real CAGR: Accounting for Taxes and Inflation

To see your actual wealth growth, you must look at "Real CAGR". This is the nominal CAGR adjusted for the eroding power of inflation and the impact of taxes.

Tax Impact: If your equity fund gives 15% CAGR, after the 12.5% LTCG tax, your effective CAGR drops to approx 13.5%.
Inflation Impact: With average inflation in India at 6%, a 15% CAGR actually only gives you a "Purchasing Power" growth of ~9%.

Benchmark CAGR across Asset Classes (Last 10 Years)

Asset Class	Average CAGR (Approx)	Risk Level
Nifty 50 (Equity)	13.2%	High
Gold	9.8%	Moderate
Public Provident Fund (PPF)	7.1%	Zero (Sovereign)
Fixed Deposit (Bank)	6.5%	Low

CAGR vs. XIRR vs. IRR: Which one to use?

Choosing the right metric is crucial for accurate financial planning. Here is a simple guide:

Metric	Best For...	Complexity
Absolute Return	Short-term gains (under 1 year)	Very Low
CAGR	Lumpsum investments (Stocks, Gold)	Moderate
XIRR	Regular SIPs or multiple withdrawals	High
IRR	Projects with equal time intervals	High

Using CAGR to Predict Future Wealth

If you know your historical CAGR, you can use it to estimate how long it will take to double your money. The Rule of 72 is a quick hack: divide 72 by your CAGR. For example, at a 12% CAGR, your money doubles in 6 years (72/12 = 6).

Our Future Value Mode (toggle at the top) allows you to perform this calculation instantly. Simply enter your current investment and your target CAGR to see what your corpus will look like in 5, 10, or 20 years.

While equity offers the highest CAGR, it also comes with significant volatility. A balanced portfolio aims for an aggregate CAGR that beats inflation by at least 4-5%.

Frequently Asked Questions (FAQ)

In the Indian context, a long-term CAGR of 12-15% is considered very healthy for an equity-heavy portfolio. For a balanced portfolio, 10-12% is a realistic target.

Use **CAGR** for lumpsum (one-time) investments where you have only two data points: start and end. Use **XIRR** for SIPs or portfolios where you have multiple cash flows at different dates.

Yes, if your investment value has decreased, the CAGR will be negative. This represents the average annual loss you sustained over the period.

Real estate is usually a lumpsum buy and a lumpsum sell. CAGR is the best way to compare your house price growth against other assets like stocks or gold over a 10-20 year period.