A simple "total return" figure can be misleading when comparing investments held for different periods. A stock that doubled in 3 years and one that doubled in 10 years both show "100% return," but their actual annual growth rates are wildly different. CAGR (Compound Annual Growth Rate) fixes this by expressing growth as a smooth, comparable annual rate.
CAGR smooths out the ups and downs of an investment's actual year-to-year performance into a single, consistent annual rate, which makes it possible to fairly compare investments of different durations side by side.
Compare stocks held for different time periods.
Measure the effective annual growth of a SIP.
Track real estate appreciation over the years.
See a year-by-year visual of compounding.
Get your compound annual growth rate with a downloadable chart, right in your browser.
Calculate CAGR →For a lump-sum SIP comparison, plug in the value at the start of your investment window and its current value, along with the number of years invested. The resulting CAGR gives you a cleaner picture of performance than simply looking at total gain, especially useful when comparing SIPs across different fund houses or time horizons.
When comparing two stocks with different holding periods, CAGR levels the playing field. A stock up 50% over 2 years and one up 50% over 5 years look identical on a simple return basis, but their CAGR figures reveal which one actually grew faster per year.
Yes, once you calculate your CAGR, the year-by-year growth chart can be downloaded as an image, useful for reports, presentations, or your own investment records.
Compound annual growth rate answers one narrow question: what constant annual rate would have taken a starting value to an ending value over a given period? The formula is
CAGR = (Ending ÷ Beginning)^(1 ÷ years) − 1
An investment growing from ₹1,00,000 to ₹2,00,000 over five years has a CAGR of 2^(1/5) − 1, about 14.87%. That single number is genuinely useful for comparing two investments over the same period, because it strips out the noise of the path taken.
It also erases that path entirely, and that is its central limitation. A holding that rose steadily and one that fell 50% in year two before recovering strongly can report identical CAGR. The experience of holding them was not remotely the same, and neither is the risk. CAGR describes the destination, never the journey.
This is the mistake worth understanding properly. CAGR assumes a single lump sum invested at the start. A systematic investment plan is a series of contributions made at different times, so each instalment has been invested for a different length of time. Your first contribution may have compounded for five years; last month's has compounded for a month.
Applying CAGR to a SIP by treating total contributions as if they were a single starting balance systematically understates the return, often dramatically. The correct measure is XIRR — the internal rate of return for a series of dated cash flows — which weights each instalment by how long it was actually invested. Spreadsheet software has an XIRR function that takes a column of dates and a column of amounts.
| Situation | Right measure | Why |
|---|---|---|
| One lump sum, one withdrawal | CAGR | Single period, single amount |
| Monthly SIP | XIRR | Each instalment has its own holding period |
| Irregular top-ups and partial withdrawals | XIRR | Handles dated flows in both directions |
| Comparing two funds over the same window | CAGR | Like-for-like on identical dates |
CAGR is acutely sensitive to its endpoints. Start the measurement at a market low and end it at a high and the figure flatters; reverse those and it damns. This is why marketing material so often quotes a period beginning conveniently. When comparing, insist on identical start and end dates, look at several different windows, and be sceptical of any period chosen for you.
A CAGR calculated from raw values is nominal. Three adjustments usually matter before the number means anything:
Comparing a share price at two dates ignores everything the holding paid out along the way. For dividend-paying stocks and funds, use total return figures that assume distributions were reinvested, or you will understate performance — sometimes by a wide margin over long periods. Splits and bonus issues also change the price without changing your economic position, so adjust for them before calculating.
CAGR is descriptive history. It says nothing about volatility, drawdown, whether the result came from one exceptional year, whether the strategy is repeatable, or what happens next. A high CAGR built on a single lucky holding is not evidence of skill, and a past rate is not a forecast. Pair it with a look at the worst drawdown and the year-by-year returns before drawing conclusions.
This article is general educational information about a calculation, not investment advice. Investment decisions depend on personal circumstances, risk tolerance, time horizon and tax position, and a qualified adviser is the right person to consult.
The calculator runs entirely in your browser. Amounts, dates and results are not uploaded, stored or linked to you, and no account is required. Verify it in the Network tab of developer tools while calculating, or disconnect from the internet after the page loads and use it anyway.
Ending value divided by beginning value, raised to the power of one divided by the number of years, minus one. Growth from 1,00,000 to 2,00,000 over five years works out to roughly 14.87% a year.
No, and doing so understates your return, often substantially. CAGR assumes one lump sum invested at the start, whereas each SIP instalment has been invested for a different length of time. Use XIRR, which weights every dated cash flow by how long it was actually held.
CAGR handles a single amount over a single period. XIRR handles a series of dated cash flows in both directions, so it copes with monthly instalments, irregular top-ups and partial withdrawals. Spreadsheet software includes an XIRR function.
Because the answer depends heavily on the start and end dates chosen, and on whether dividends are assumed reinvested. Insist on identical periods and total-return figures when comparing, and be sceptical of any window that was selected for you.
Not unless you adjust for them. A raw calculation is nominal and gross. Inflation, expense ratios, brokerage and tax all reduce what you actually keep, and they compound against you in the same way returns compound for you.
Not on its own. CAGR erases the path taken, so a steady climb and a violent crash followed by a recovery can report the same figure. Look at the worst drawdown and the year-by-year returns alongside it, and remember that a past rate is not a forecast.
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