CAGR vs ROI — What Is the Difference?

A clear comparison of CAGR and ROI — formulas, worked examples, a bar chart comparison, and when to use each metric.

📅 Updated 2026-03-14 🕒 5 min read 📋 Free Calculator Included

📚 CAGR vs ROI — Key Definitions

Both CAGR and ROI measure investment performance, but they answer different questions. ROI (Return on Investment) measures the total percentage gain or loss relative to the original investment — with no regard for time. CAGR (Compound Annual Growth Rate) measures the annualised rate of growth, making it time-adjusted and directly comparable across different investment durations.

ROI

Total % return, ignores time

CAGR

Annualised rate, time-adjusted

XIRR

Multi-cashflow annualised return

📋 Formulas Side by Side

ROI FormulaROI = (Ending Value − Beginning Value) / Beginning Value × 100

CAGR FormulaCAGR = (Ending Value / Beginning Value) ^ (1/n) − 1 × 100

Where n = number of years

Metric	Formula	Time-Adjusted	Best For
ROI	(EV−BV)/BV × 100	No	Single-period comparison
CAGR	(EV/BV)^(1/n)−1 × 100	Yes	Multi-period comparison

Same Investment — Different Answers

🌟 Example — ₹1 lakh grows to ₹2.5 lakh over 5 years

ROI: (2,50,000 − 1,00,000) / 1,00,000 × 100 = 150%

CAGR: (2,50,000/1,00,000)^(1/5) − 1 = 2.5^0.2 − 1 = 20.1% per year

ROI of 150% sounds impressive but CAGR of 20.1%/yr is what you compare against other annual return metrics.

📈 CAGR vs Simple Return — Compounding Effect Over Time

⚖ When to Use CAGR vs ROI

Use ROI when:

Comparing two investments held for the same fixed period
Evaluating a completed trade (e.g., bought at ₹500, sold at ₹750)
Quick profitability check without time consideration

Use CAGR when:

Comparing investments held for different time periods
Evaluating mutual fund or portfolio performance against benchmarks
Reporting business revenue or subscriber growth
Projecting future investment values at a given annual rate

Why ROI Can Be Misleading

A 200% ROI sounds great — but if it took 20 years, that is only a CAGR of 5.65%, which barely beats inflation. Meanwhile a 50% ROI in just 2 years is a CAGR of 22.5% — dramatically better. Always annualise returns before comparing.

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❓ Frequently Asked Questions

Which is better — high ROI or high CAGR?

Neither is universally better — they measure different things. For time-adjusted performance comparison, CAGR is more meaningful. A fund with 200% total ROI over 20 years (CAGR 5.65%) is far worse than one with 100% ROI over 5 years (CAGR 14.87%).

Is 12% CAGR good?

12% CAGR is considered very good for equity investments, roughly matching long-term Nifty 50 performance. For fixed income, 6–8% CAGR is considered good. For high-risk assets like small-cap or crypto, investors often target 20%+ CAGR to justify the risk.

What is XIRR and when to use it?

XIRR is the extended IRR that handles irregular cash flows with specific dates — like SIP investments. For a standard single lump-sum investment, CAGR and XIRR give the same result. For SIPs or multiple irregular investments, always use XIRR.

🔗 Related Calculators

📈CAGR Calculator 💰Investment Return 📊Stock Profit

💡 Tip: Use ROI to compare two investments at the same point in time. Use CAGR to compare investments held for different durations.