What Is a Good CAGR? How to Benchmark Mutual Fund and Stock Returns

You check your mutual fund statement and see "CAGR: 14.2%" sitting next to your holdings. Is that good? Bad? Average? Most investors nod along without actually knowing whether their fund is beating the market or quietly lagging behind it year after year.

A good CAGR India investor should benchmark isn't a single magic number. It depends on the asset class, the time period, and what you're comparing against. Here's how to actually judge it, with the formula and a worked example.

What is CAGR? #

CAGR stands for Compound Annual Growth Rate. It's the single, steady annual rate that would take your starting investment to your ending value over a given number of years, smoothing out all the ups and downs in between.

That smoothing is the whole point. A stock that goes up 40% one year and drops 15% the next has a messy, hard-to-compare return path. CAGR reduces that path to one number: the constant annual rate that produces the same end result.

How CAGR is calculated #

The formula is:

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

Three inputs, no shortcuts. You need the starting value, the ending value, and the number of years between them.

Step by step #

1. Divide the ending value by the starting value.
2. Raise that number to the power of (1 divided by the number of years).
3. Subtract 1 from the result.
4. Multiply by 100 to express it as a percentage.

Worked example with real numbers #

Suppose you invested Rs 10,000 in a mutual fund, and five years later it's worth Rs 25,000.

Step 1: 25,000 / 10,000 = 2.5

Step 2: 2.5^(1/5) = 2.5^0.2 = 1.2011

Step 3: 1.2011 − 1 = 0.2011

Step 4: 0.2011 × 100 = 20.11%

That fund compounded at roughly 20.11% a year for five years. Note this isn't the same as saying it returned 20.11% every single year. It could have gained 40% in year one and lost 5% in year three, and still land at a 20.11% CAGR by year five.

Compare that to a fund that turned Rs 50,000 into Rs 1,50,000 over seven years: (1,50,000/50,000)^(1/7) − 1 = 3^(1/7) − 1 = 1.16997 − 1 = 16.997%, or about 17%. The first fund's CAGR is higher, but you'd also want to check the risk each fund took to get there before assuming it's the better pick.

What counts as a "good" CAGR in India #

There's no universal answer, but here's how to think about it by asset class, based on long-term historical averages rather than any single year's numbers:

Large cap equity funds: historically compounded in the low-to-mid teens over long stretches (roughly 11-13% annually), tracking broadly with the Nifty 50 or Sensex over 10+ year periods.

Mid cap equity funds: tend to run a few points higher over the long run, often mid-to-high teens, with noticeably more volatility along the way.

Small cap equity funds: historically the highest long-term average, but also the most volatile year to year, with sharper drawdowns in bad years.

Debt funds and FDs: usually mid-single digits to around 7-8%, depending on prevailing interest rates in the current financial year. Check the current rate before assuming this figure still applies.

A CAGR only becomes meaningful once you compare it against the right benchmark. A large cap fund returning 12% CAGR isn't automatically "bad" just because a small cap fund elsewhere returned 18%, they're different risk categories entirely.

Why CAGR matters more than absolute returns #

Absolute return just tells you the total percentage gain over the entire period, with no sense of how long it took. A fund that gained 50% in 3 years and one that gained 50% in 10 years both show "50% return," but the first compounded far faster.

CAGR fixes this by putting every investment on the same annualized footing, whether you held it for 2 years or 20. That's why fund fact sheets and your CAGR calculator report CAGR instead of just total return.

CAGR also lets you fairly compare a mutual fund against an FD, a stock, or even a real estate investment, as long as you're using the same start and end dates for all of them.

Common mistakes and myths #

Mistake 1: Treating CAGR as a guaranteed yearly return. CAGR is a smoothed average, not a promise. Your actual year-by-year returns will almost always look different, sometimes wildly different, from the CAGR figure.

Mistake 2: Comparing CAGR across mismatched time periods. A fund's 3-year CAGR and another fund's 10-year CAGR aren't directly comparable. Market cycles differ across periods, so always match the time frame before comparing two CAGR figures.

Mistake 3: Ignoring risk when comparing CAGR. A 20% CAGR from a small cap fund and a 20% CAGR from a large cap fund did not take the same path to get there. The small cap fund almost certainly saw bigger drawdowns along the way, so check the standard deviation or maximum drawdown too, not just the headline number.

Myth: A higher CAGR is always better. Not if it comes with volatility you can't stomach during a downturn. The "best" CAGR is the one you actually earned by staying invested through the rough years, not the one you abandoned halfway through.

Tips for using CAGR well #

Always check the time period. A 1-year CAGR during a bull run tells you almost nothing about long-term fund quality; look at 5-year and 10-year CAGR figures where available.

Compare like with like. Match large cap funds against large cap benchmarks, not against small cap peers or gold.

Use CAGR alongside other metrics like expense ratio, standard deviation, and fund manager tenure, rather than picking a fund on CAGR alone.

Recalculate periodically. A fund's 5-year CAGR from two years ago is now a 3-year CAGR window from today, and the number will have shifted.

If you want to compare a real scenario, run the numbers on a 5,000 monthly SIP over 10 years and see what CAGR that projected corpus implies, or check the same growth using the 10,000 to 25,000 in 5 years example on our CAGR calculator.

Internal links and related calculators #

Once you know a fund's starting and ending value, plug them into the CAGR calculator to get the exact figure instantly instead of doing the exponent math by hand.

If you're deciding between a lump sum and a monthly SIP, the lumpsum calculator and SIP calculator both let you project outcomes at different assumed CAGR levels. For funds where you've made multiple purchases and redemptions at different dates, the XIRR calculator gives a more accurate return figure than a simple CAGR.

Frequently asked questions #

Is CAGR the same as annualized return? #

Yes, CAGR is one common way to express annualized return. Both describe the constant yearly growth rate that connects a starting and ending value over a period, smoothing out the actual year-to-year fluctuations.

What's a good CAGR for a 5-year SIP? #

There's no fixed target, but many long-term equity SIPs in India have historically landed in the 11-15% CAGR range over 5+ year periods, with meaningful variation depending on which years and which fund category you look at. Treat any specific number as a rough guide, not a guarantee.

Can CAGR be negative? #

Yes. If your ending value is lower than your starting value, the CAGR formula returns a negative percentage, showing the fund or stock lost value on an annualized basis over that period.

Why does my fund's CAGR differ from its 1-year return? #

Because they measure different things. The 1-year return shows what happened in just the most recent year, while CAGR averages performance across the entire holding period. A fund can have a strong 1-year return but a modest 5-year CAGR if earlier years were weak, or vice versa.

Does CAGR account for dividends or IDCW payouts? #

It depends on whether you're using the NAV that includes reinvested payouts or the raw NAV. Most fund fact sheets calculate CAGR on a total-return basis that assumes dividends or IDCW are reinvested, so check which NAV series a given CAGR figure is based on before comparing two funds.

Conclusion #

A good CAGR is relative to the asset class, the time period, and the risk you took to get there, not a single number you can chase blindly. Use it to compare funds fairly, but pair it with volatility and consistency checks before deciding where to invest.

Ready to check your own numbers? Head to the CAGR calculator and enter your fund's starting value, ending value, and holding period to see your exact annualized return in seconds.