CAGR Calculator
Calculate Your Investment’s Compound Annual Growth Rate
What is CAGR?
CAGR, or Compound Annual Growth Rate, is one of the most useful metrics for investors. In simple terms, it’s the average annual rate at which your investment has grown over a specific period, assuming the profits were reinvested at the end of each year.
Think of it as a way to “smooth out” the returns. Investments rarely grow at a steady rate; they go up and down. CAGR gives you a single, representative number that shows the average, compounded growth per year.
Real-life example: Imagine you invested ₹1,00,000. Three years later, your investment is worth ₹1,50,000. Your returns weren’t the same each year—maybe you gained 20% in Year 1, lost 5% in Year 2, and gained 18% in Year 3. The CAGR calculator cuts through this noise and tells you that, on average, your investment grew at 14.47% per year to get from ₹1,00,000 to ₹1,50,000 in 3 years.
How to Calculate CAGR Manually
While our calculator does the work for you, it’s helpful to know the formula. The manual formula for CAGR is:
Here’s a step-by-step breakdown using our example:
- Start Value: ₹1,00,000
- End Value: ₹1,50,000
- Years: 3
- Divide End Value by Start Value: 1,50,000 / 1,00,000 = 1.5
- Calculate the exponent: 1 / 3 (Years) = 0.333…
- Raise the result to the power of the exponent: 1.5 ^ (1/3) = 1.1447
- Subtract 1: 1.1447 – 1 = 0.1447
- Convert to percentage: 0.1447 * 100 = 14.47%
Why CAGR Matters in Investing
CAGR is crucial because it provides a more accurate picture of performance than a simple average. A “simple average return” just adds up the returns for each year and divides by the number of years, which ignores the effect of compounding and can be misleading.
- Apples-to-Apples Comparison: CAGR allows you to fairly compare the performance of different investments (like mutual funds, stocks, or your whole portfolio) over different time horizons.
- Performance Measurement: It helps you understand how efficiently your money has grown and whether your investments are meeting your financial goals.
- Long-Term Perspective: By smoothing out short-term volatility, CAGR focuses on the sustainable, long-term growth rate of your investment.
How to Use the CAGR Calculator
- Enter your initial investment: Type the starting amount (e.g., ₹1,00,000) in the “Initial Investment” field.
- Enter your final investment value: Type the value of the investment at the end of the period.
- Enter the duration in years: Input the total number of years the investment was held (e.g., 5).
- Click “Calculate CAGR” to see your result instantly.
- The tool will show your CAGR in percentage, along with a growth summary.
- Use the “Reset” button to clear the fields and try new values.
Frequently Asked Questions (FAQ)
Q1. What is CAGR in simple words?
CAGR, or Compound Annual Growth Rate, shows the average annual rate at which your investment has grown over a specific period. It smooths out the yearly ups and downs to give you a steady growth rate, as if the investment grew by that exact percentage every year.
Q2. Why is CAGR important?
CAGR is important because it helps investors accurately compare the performance of different investments (like mutual funds or stocks) over time, even if they have different starting points and durations. It tells you how efficiently your money has grown year over year.
Q3. Is CAGR the same as annual return?
Not exactly. An “annual return” measures one year’s growth, which can be very high or very low (volatile). CAGR is an average of returns over multiple years, which provides a more accurate and stable picture of long-term investment performance.
Q4. Can CAGR be negative?
Yes. If your final investment value is lower than your initial investment, the CAGR will be negative. This indicates a compound annual loss over the period, showing the average rate at which your investment decreased in value each year.
Q5. How accurate is this calculator?
This tool uses the standard, universally accepted CAGR formula, ensuring mathematical accuracy. However, it’s for estimation and educational purposes. It doesn’t account for external factors like taxes, fees, dividends (unless reinvested and included in the end value), or market volatility within the period.