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What Is CAGR- Meaning, Formula & Calculation
In summary
CAGR, or Compound Annual Growth Rate, shows the annualised growth rate needed for an investment to move from its starting value to its ending value over a period.
- CAGR expresses multi-year growth as one annualised percentage.
- The formula uses the beginning value, ending value, and investment period.
- A Rs. 1 lakh investment growing to Rs. 1.61 lakh in 5 years has a CAGR of about 10%.
- CAGR smooths out yearly ups and downs into one rate.
- CAGR works best when there is one initial investment and one final value.
- It does not show what happened during individual years.
- CAGR does not account for the timing of additional investments or withdrawals.
- The Bajaj Broking website can provide investment information, but CAGR should be considered alongside risk and other performance measures.
CAGR is useful for understanding historical growth, but it is not a guaranteed future return or a complete measure of investment performance.
What is CAGR?
CAGR stands for Compound Annual Growth Rate. It represents the annualised rate at which an investment would have grown if it had increased at a constant compounded rate from its beginning value to its ending value.
Actual investments rarely grow at the same rate every year. An investment may rise sharply in one year and decline in another. CAGR converts the overall change between two values into a single annualised rate, making different periods easier to compare.
For example, if an investment grows from Rs. 1 lakh to Rs. 1.61 lakh over five years, a CAGR of about 10% means that a constant annual growth rate of approximately 10%, compounded each year, would produce a similar ending value.
CAGR is therefore a smoothed measure, not a record of what the investment actually earned in each year.
How does CAGR work?
CAGR uses the starting value, ending value, and number of years to calculate the annualised growth rate.
The formula is:
CAGR = [(Ending Value ÷ Beginning Value)^(1 ÷ Number of Years) − 1] × 100
For example, suppose Priya invests Rs. 1,00,000 in an asset. Five years later, its value is Rs. 1,61,051.
Using the formula:
CAGR = [(1,61,051 ÷ 1,00,000)^(1 ÷ 5) − 1] × 100
CAGR ≈ 10%
This does not mean the investment actually earned exactly 10% in every year. It means that a steady compounded annual growth rate of about 10% would produce the same final value over five years.
If you want to understand how returns generated on an investment can themselves contribute to future growth, see compounding.
How do you calculate CAGR?
You can calculate CAGR in four steps:
- Find the beginning value: Note the investment's value at the start of the period.
- Find the ending value: Note its value at the end of the period.
- Calculate the annualised growth: Divide the ending value by the beginning value and raise it to the power of 1 divided by the number of years.
- Convert it into a percentage: Subtract 1 and multiply the result by 100.
Example of CAGR calculation
Suppose Arjun invests Rs. 50,000 in a mutual fund. After five years, the investment is worth Rs. 80,000.
The calculation is:
CAGR = [(80,000 ÷ 50,000)^(1 ÷ 5) − 1] × 100
CAGR ≈ 9.86%
This means the investment's beginning and ending values are equivalent to a steady compounded annual growth rate of about 9.86% over the five-year period.
The actual returns could have been different in each year.
Why is CAGR useful?
CAGR can make multi-year performance easier to understand because it expresses growth as one annualised figure.
It can help you:
- Compare investments: Compare growth over similar periods using an annualised measure.
- Understand long-term growth: See how quickly an investment grew between two points.
- Review historical performance: Assess how an investment's value changed over a chosen period.
- Compare business growth: Measure the annualised growth of revenue, sales, assets, or other financial measures.
- Assess purchasing power: Compare investment growth with changes in purchasing power.
CAGR should be viewed alongside the investment's risk, costs, taxes, and the period selected for comparison.
How is CAGR used for mutual funds?
CAGR is commonly used to express mutual fund returns for periods longer than one year. Mutual fund factsheets may show compounded annualised returns for periods such as one year, three years, five years, and since inception.
However, CAGR is mainly suitable for a single investment made at the beginning of a period and valued at the end.
It does not account for the timing or size of additional investments and withdrawals. This is important for investors using an SIP, because each instalment is invested on a different date.
AMFI reported SIP contributions of Rs. 32,297 crore in August 2026, illustrating the scale of regular investing in India. Such recurring cash flows require a return measure that accounts for their different investment dates.
When should you use CAGR?
CAGR can be useful when you have a clear beginning value, ending value, and investment period.
For example, you can use it to:
- Compare the historical growth of two investments held for similar periods.
- Assess the growth of a company's revenue over several years.
- Compare the growth of different asset classes.
- Review a fund's historical annualised performance over a specified period.
- Understand the effect of long-term growth on an initial investment.
You can also use CAGR as one input when reviewing an investment strategy, but it should not be the only measure you consider.
What are the limitations of CAGR?
CAGR is useful, but it can hide important information about how the investment performed.
It smooths out yearly returns
A 12% CAGR does not mean the investment earned 12% every year. The investment could have experienced significant gains and losses during the period.
It does not show volatility
Two investments can have the same CAGR while experiencing very different levels of volatility. CAGR alone cannot show how much the value fluctuated.
It ignores intermediate cash flows
CAGR does not properly account for additional investments, withdrawals, or their timing. This makes it unsuitable as the sole return measure for many SIP or irregular-investment portfolios.
The period selected matters
Changing the start or end date can produce a different CAGR. A strong or weak market period at either end of the calculation can materially affect the result.
It does not measure risk
A higher CAGR does not automatically mean an investment was more suitable. You should consider the investment's risk level, asset allocation, costs, and other relevant factors.
What is the difference between CAGR and XIRR?
CAGR and XIRR both help measure investment performance, but they are designed for different cash-flow situations.
| Factor | CAGR | XIRR |
|---|---|---|
| Cash flows | Best for one initial investment and one final value | Handles multiple cash flows on different dates |
| Timing | Assumes the investment period is known | Explicitly considers the dates of cash flows |
| Common use | Lumpsum investments and business growth | SIPs and irregular investments |
| Output | Annualised compounded growth rate | Annualised return based on actual cash-flow dates |
For a deeper comparison, see CAGR and XIRR.
Last updated: September 2026
Can CAGR be negative?
Yes. CAGR is negative when the ending value is lower than the beginning value.
For example, if Rs. 1,00,000 falls to Rs. 80,000 over five years, the CAGR is approximately -4.36%.
A negative CAGR indicates that the investment's value declined over the selected period. It does not describe the path taken to reach that ending value, so you should also examine the investment's interim performance.
How should you interpret CAGR?
CAGR tells you the annualised compounded growth rate implied by two values and a specified period.
For example:
- 10% CAGR: The beginning and ending values are equivalent to growing at 10% annually with compounding.
- 0% CAGR: The beginning and ending values are the same.
- Negative CAGR: The ending value is lower than the beginning value.
There is no universal CAGR that can be called “good”. The relevant comparison depends on the asset, period, risk, costs, taxes, and investment objective.
You should also avoid treating a historical CAGR as an expected or guaranteed future return.
Can you calculate CAGR in Excel?
Yes. Excel provides functions that can be used to calculate or derive CAGR, including RRI for a straightforward beginning-value, ending-value, and period calculation.
For a step-by-step approach, see how to calculate CAGR in Excel.
Conclusion
CAGR converts the growth between an investment's beginning and ending values into an annualised compounded rate. It is useful for understanding and comparing multi-year growth, but it smooths out the actual path taken by the investment.
Use CAGR with the investment period, risk, costs, taxes, and cash-flow pattern in mind. For investments involving multiple contributions or withdrawals, a measure such as XIRR may provide a more appropriate view of performance.
Last reviewed: September 2026
Mutual funds are subject to market risk. Please read the scheme-related documents carefully before investing.
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Frequently Asked Questions
Understanding CAGR
Calculating CAGR
Interpreting CAGR
Is CAGR better than ROI?
CAGR and ROI serve different purposes. ROI shows the total percentage gain or loss on an investment, while CAGR shows its annualised compounded growth over a period. CAGR can be more useful for comparing investments held for different periods.
How do you convert CAGR to annual growth?
CAGR already represents an annualised growth rate. For example, a CAGR of 12% means the beginning and ending values are equivalent to growing at 12% per year on a compounded basis over the selected period. It does not mean the investment earned exactly 12% every year.
Is a CAGR of 30% good?
A 30% CAGR indicates strong annualised growth over the selected period, but it should not be judged in isolation. Consider the investment type, period, benchmark, volatility and risk before assessing whether the historical performance is suitable for your investment goals.
What is the difference between CAGR and growth rate?
CAGR shows the annualised growth rate over multiple years, assuming compounded growth. A regular growth rate can refer to the change between two periods or a single year's growth. CAGR provides one annualised figure for the entire period.
Is 100% CAGR good?
A 100% CAGR means the investment's value is equivalent to doubling every year over the selected period. Such a result represents very high historical growth. However, the investment's risk, time period, volatility and underlying returns should be reviewed before drawing conclusions from the CAGR alone.
What is CAGR in investing?
CAGR, or Compound Annual Growth Rate, shows the annualised growth rate of an investment over a specific period. It assumes the investment grows at a constant compounded rate between its beginning and ending values. CAGR is useful for comparing historical investment growth over similar periods.
How is CAGR calculated?
CAGR is calculated using the beginning value, ending value and investment period. The formula is: CAGR = [(Ending Value ÷ Beginning Value)^(1 ÷ Number of Years) − 1] × 100. The result represents the equivalent annual compounded growth rate.
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