CAGR Calculator
The CAGR calculator is designed to help you calculate your investment's average annual growth rate over time. With just the starting value, ending value, and the number of years, you can quickly understand how much your investment has performed over time.
Initial investment
₹
Final investment
₹
Duration of investment
years
Initial amount
₹ 5,000
Final Amount
₹ 25,000
CAGR
37.97 %
What Is CAGR?
CAGR stands for Compound Annual Growth Rate. It measures the average yearly growth of an investment over a set period. It shows how much the value of the investment increases on average each year, assuming steady growth. CAGR takes into account the effect of compounding, meaning each year’s growth is added to the previous year’s value.
What Is a CAGR Calculator?
A CAGR (Compound Annual Growth Rate) calculator is an online tool used to measure how much an investment has grown, on average, each year over a time period. This includes specific tools like the CAGR calculator for SIP, which focuses on systematic investment plans. It assumes that the growth has been consistent year after year, even if actual returns have varied.
To use the calculator, simply enter three key details: the initial value of your investment, its final value, and the number of years you held the investment. The calculator then gives you the CAGR, which shows how efficiently your investment has grown annually.
This is useful when comparing different investments over time, as it provides a standardised growth rate that smooths out short-term market fluctuations, giving you a clearer picture of long-term performance.
What Is the CAGR formula?
To calculate the Compound Annual Growth Rate (CAGR), you need three inputs: the beginning value, the ending value, and the number of years the investment was held.
The formula is:
CAGR = [(Ending Value / Beginning Value) ^ (1 / Number of Years)] - 1
Where:
- Beginning Value is the initial investment amount.
- Ending Value is the final value of the investment.
- Number of Years is the total period the investment has grown.
For example: If you invested ₹10,000 in 2017, and it grew to ₹20,000 by 2024, the investment period is 7 years. Using the formula:
CAGR = [(20,000 / 10,000) ^ (1 / 7)] - 1 = 0.1041
Thus, the CAGR is 10.41%, meaning the investment grew at an average rate of 10.41% annually over those 7 years.
How to Use Kotak Securities' CAGR Calculator
Using Kotak Securities' CAGR calculator is simple. Follow these steps to calculate the Compound Annual Growth Rate (CAGR) of your investment:
Enter the initial investment amount you invested. Let’s say ₹10,000. Enter the current value of your investment or the value at the end of the period you want to measure. Here, let’s take ₹18,000. Lastly, enter the total years your investment has been held, say 5 years.
Once you've entered these values, the calculator will automatically compute the CAGR, showing you your investment's average annual growth rate over the selected period.
Frequently Asked Questions
What is the CAGR ratio?
The CAGR ratio is simply a way to compare the growth rates of two different investments. For example, if you're looking at two stocks or funds, the CAGR ratio can show which one has grown faster over the same period. It helps you see the relative performance of one investment versus another.
So, while CAGR gives the growth rate of one investment, the CAGR ratio compares growth rates between multiple investments.
When to use CAGR?
CAGR is ideal for understanding the long-term performance of investments like equities, mutual funds, or even company revenues. It helps when you want to see how your investment has grown consistently over multiple years.
What is CAGR return?
CAGR return is the average annual growth rate of your investment over a certain period, assuming it grew at a steady rate. It simplifies the performance into one number, so you can easily compare it with other investments or benchmarks.
Why is CAGR important?
CAGR is important because it provides a clear view of how an investment has performed over time despite market ups and downs. It shows you the real growth of your investments and is helpful when comparing different investments over the same period.
Can you use CAGR for months?
Yes, you can calculate CAGR for periods shorter than a year, like months. The formula remains the same; you just need to adjust the time period accordingly to get accurate results.
What is the difference between the Absolute Return and the CAGR for a Mutual Fund?
Absolute Return tells you the total percentage of gain or loss in your investment over a period without considering how long you held it.
CAGR, on the other hand, tells you how much your investment grew each year on average. While Absolute Return shows the big picture, CAGR shows the growth pace.
How do you convert CAGR to annual growth?
CAGR already shows the annual growth rate, so you don’t need to convert it.
What does 5-year CAGR mean?
A 5-year CAGR shows how much your investment has grown, on average, each year over the last five years.
What is the difference between XIRR and CAGR?
While both XIRR and CAGR are used to calculate investment returns, they are designed for different types of investments based on how cash flows occur.
- XIRR (Extended Internal Rate of Return) is used for investments where cash flows happen at irregular intervals, such as SIPs or any investment involving multiple contributions or withdrawals over time. XIRR calculates returns by accounting for both the timing and size of each transaction, making it ideal for investments with varying cash flow patterns.
- CAGR (Compound Annual Growth Rate) is more straightforward and applies to investments where cash flow occurs only at the start (like a lump-sum investment). It gives the average annual growth rate over a period but doesn’t account for cash flow timing or volatility, simplifying the investment's overall growth into a single consistent rate.
How is CAGR calculated online for mutual funds?
To calculate the CAGR for mutual funds online, you simply need the starting value of your investment, its current value, and the time period (in years). Online Kotak Securities’ CAGR calculator applies the formula to give you the average annual growth rate.
What is the difference between CAGR and rolling returns?
CAGR shows the fixed annual growth rate over a set period while rolling returns measure performance over various overlapping periods (like one-year returns calculated every day for five years). Rolling returns are better for understanding consistency, while CAGR provides a more straightforward long-term view.
What is a good CAGR percentage?
A good CAGR depends on the investment. A CAGR of 10-15% for long-term stock market investments is often considered solid. However, this can vary depending on the type of investment and market conditions.
How to calculate the CAGR of an investment?
To calculate the CAGR of an investment, use the starting and ending values along with the investment period. The formula is:
CAGR = [(Ending Value / Beginning Value) ^ (1 / Number of Years)] - 1
Where the ending value is the final value of the investment, the beginning value is the investment's starting value, and the number of years is the total time over which the investment grew.
Why is CAGR better than average?
CAGR is better because it reflects the compounded growth of an investment over time, while a simple average ignores compounding and volatility, giving a less accurate picture of long-term performance.
What is CAGR in SIP?
CAGR in SIP measures how much your regular investments have grown annually, on average, over a specific period.
Example of CAGR calculation for SIP:
Suppose you’ve been investing ₹15,000 monthly in a SIP for three years, totalling ₹5,40,000. At the end of the period, your investment is worth ₹7,00,000.
- Total Investment: ₹5,40,000
- Ending Value: ₹7,00,000
- Investment Period (n): 3 years
Using the CAGR formula:
CAGR = [(Ending Value / Beginning Value) ^ (1 / Number of Years)] - 1
CAGR= (1.2963)^(1/3)−1 ≈0.0931 or 9.31%
However, CAGR may not fully capture SIP growth as each monthly investment grows for different time periods. For more accurate results, consider using XIRR.
