What is CAGR?
CAGR (Compound Annual Growth Rate) represents the rate at which an investment would have grown if it had grown at a steady rate. It's the most accurate way to calculate returns over multiple years.
CAGR Formula
CAGR = ((Final Value / Initial Value)^(1/n) - 1) × 100
Where n = number of years
Example Calculation
If ₹1 lakh grows to ₹2.5 lakhs in 5 years:
- CAGR: 20.11% per year
- Absolute Returns: 150%
- Simple Avg Returns: 30% per year (misleading!)
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Why CAGR Matters
CAGR accounts for compounding and gives you the "smoothed" annual growth rate. It's the standard metric used by mutual funds and financial institutions.
Benchmark CAGR Returns
| Investment Type | Typical CAGR (Long-term) |
|---|---|
| Fixed Deposits | 5-7% |
| Debt Mutual Funds | 6-8% |
| Equity Mutual Funds | 12-15% |
| Nifty 50 Index | 11-13% |
| Gold | 8-10% |
| Real Estate | 8-12% |