Question 1

What is CAGR?

Accepted Answer

CAGR stands for Compound Annual Growth Rate. It is the rate at which an investment would have grown each year if it had grown at a perfectly steady pace, starting from the initial value and arriving at the final value over the given number of years. It smooths out year-to-year volatility so you can compare investments on an equal footing.

Question 2

How is CAGR different from absolute return?

Accepted Answer

Absolute return is the total percentage gain over the entire holding period, with no adjustment for time. CAGR converts that total gain into an equivalent per-year rate. For example, if an investment doubled (100% absolute return) over 5 years, the CAGR is about 14.87% per year, not 20%. CAGR makes long and short holding periods directly comparable.

Question 3

What is a good CAGR for equity investments in India?

Accepted Answer

Indian equity indices (Nifty 50, Sensex) have delivered a CAGR of roughly 12 to 15% over the past two decades, though individual years can swing significantly. Actively managed large-cap funds often target 12 to 16% CAGR. As a rule of thumb, a CAGR of 12% or above over a 7 to 10 year horizon is generally considered a healthy equity return in the Indian market.

Question 4

How do I use CAGR to compare mutual funds?

Accepted Answer

Look at rolling CAGR over the same period (say, 5 years or 10 years) for both funds. A fund with a higher CAGR over the same duration has compounded money faster. Also check consistency: a fund that delivered 14% CAGR with low standard deviation is better than one that delivered the same CAGR with wild swings. Always compare funds in the same category, since a small-cap fund and a large-cap fund face very different risk profiles.

CAGR Calculator

Frequently asked questions

CAGR Calculator

Frequently asked questions