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Investment Guide

How to Calculate CAGR (Formula + Example)

Learn the CAGR formula step by step with a clear worked example, comparison table, and free online CAGR calculator.

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

📚 What Is CAGR?

CAGR — Compound Annual Growth Rate — is the single most important metric for measuring investment performance. It represents the mean annual growth rate of an investment over a specified period longer than one year, assuming profits are reinvested at the end of each period. Unlike a simple average, CAGR accounts for the compounding effect, giving you the true equivalent annual growth rate that smooths out year-to-year volatility.

Whether you are evaluating a mutual fund, stock, business revenue, or real estate appreciation, CAGR gives you a single number that makes comparison across different time horizons and asset classes meaningful and accurate.

📋 The CAGR Formula

The CAGR formula uses three inputs: the beginning value, the ending value, and the number of years.

CAGR FormulaCAGR = (Ending Value / Beginning Value) ^ (1 / Number of Years) − 1

Or as a percentage:
CAGR (%) = [(EV / BV) ^ (1/n) − 1] × 100

Step-by-Step Calculation

1
Identify your values: Beginning value (BV), Ending value (EV), and number of years (n).
2
Divide EV by BV: This gives you the total growth multiple.
3
Raise to the power of (1/n): This annualises the total growth.
4
Subtract 1: This converts the multiplier to a growth rate. Multiply by 100 for the percentage.

🧪 CAGR Calculation Example

🌟 Worked Example

Scenario: You invested ₹1,00,000 in a mutual fund in January 2020. By January 2025 (5 years), it grew to ₹1,76,234.

Step 1 — Divide: 1,76,234 / 1,00,000 = 1.76234

Step 2 — Apply power: 1.76234 ^ (1/5) = 1.76234 ^ 0.2 = 1.1200

Step 3 — Subtract 1: 1.1200 − 1 = 0.1200

Result: CAGR = 12.00% per year

This means your investment grew at an equivalent annual rate of 12% per year, even if the actual year-by-year returns varied significantly — perhaps 20% in one year and only 5% in another.

12%
CAGR in example
5 yrs
Investment period
₹76,234
Total profit
76.2%
Total return
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Use the CAGR Calculator

Calculate CAGR for any investment instantly — just enter your start value, end value, and years.

Open Calculator →

📈 When to Use CAGR

Comparing Investments

CAGR is the standard for comparing mutual fund performance, stock returns, and portfolio growth. If Fund A returned 15% in Year 1 and 5% in Year 2, while Fund B returned 10% each year, they appear different — but both deliver a very similar CAGR. This level comparison is impossible with simple averages.

Business Revenue Growth

Companies use CAGR to measure revenue, profit, or subscriber growth over multi-year periods. A startup that grew from ₹50 lakh to ₹3 crore over 4 years has a CAGR of 56.5% — a compelling metric for investors.

Real Estate Appreciation

If you bought a property for ₹40 lakhs in 2015 and it is now worth ₹90 lakhs in 2025, the 10-year CAGR is approximately 8.4%. This lets you compare property appreciation against equity or fixed deposit returns.

Limitations of CAGR

  • CAGR does not capture volatility — two investments can have the same CAGR with very different risk profiles
  • It assumes smooth, uninterrupted growth which rarely happens in practice
  • Not suitable for investments with regular contributions (use XIRR for those)

❓ Frequently Asked Questions

What is a good CAGR for a mutual fund?+
Large-cap mutual funds in India historically deliver 10–13% CAGR over 10-year periods. Mid-cap and small-cap funds can achieve 14–22% CAGR, but with higher volatility. Index funds tracking Nifty 50 deliver approximately 12–14% CAGR over long periods.
What is the difference between CAGR and absolute return?+
Absolute return is the total percentage gain over the entire investment period, regardless of time. CAGR is the annualised version — it tells you the equivalent yearly growth rate. For example, a 100% absolute return over 10 years is only 7.18% CAGR.
Can CAGR be negative?+
Yes. If an investment loses value, CAGR will be negative. For example, if ₹1,00,000 falls to ₹70,000 over 5 years, the CAGR is (70000/100000)^(1/5) − 1 = −6.9% per year.
How is CAGR different from IRR?+
CAGR measures growth between two points in time for a single lump-sum investment. IRR (Internal Rate of Return) handles multiple cash flows at different times — like SIP investments with monthly contributions. Use CAGR for lump-sum; use XIRR/IRR for SIP returns.
What is the Nifty 50 CAGR historically?+
The Nifty 50 index has delivered approximately 12–15% CAGR over most 15-year rolling periods from 1995 to 2025. Individual years vary significantly — from −52% in 2008 to +76% in 2009.

🔗 Related Guides

Deepen your understanding with these related articles:

🔗 Related Calculators

📈CAGR Calculator💰Investment Return⚡Rule of 72📊SIP Calculator
💡 Tip: CAGR smooths out year-to-year volatility. Nifty 50 has delivered ~12–14% CAGR over 15-year periods historically.

📈 Quick CAGR Reference

CAGR₹1L in 10 yrs
8%₹2,15,892
10%₹2,59,374
12%₹3,10,585
15%₹4,04,556
20%₹6,19,174