CAGR Full Form: Compound Annual Growth Rate
CAGR full form is Compound Annual Growth Rate — the annualised rate at which an investment grows if it compounded at a constant rate.
What is CAGR?
Compound Annual Growth Rate (CAGR) is the smoothed annual rate at which an investment would have grown from its beginning value to its ending value if it had compounded at a constant rate every year. Formula: CAGR = (End / Start)^(1/years) − 1.
Why CAGR matters
CAGR is the standard way to compare investments of different tenures. Unlike absolute return, it accounts for the time value of money, so a 100% return over 2 years (CAGR = 41.4%) can be compared fairly with a 100% return over 5 years (CAGR = 14.9%).
Example
If you invested ₹1 lakh and it grew to ₹2 lakh in 5 years, the CAGR is (2/1)^(1/5) − 1 = 14.87% per annum.
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Frequently asked questions
What is CAGR in mutual funds?
In mutual funds, CAGR represents the annualised return of a lumpsum investment. It is not appropriate for SIPs (multiple cash flows) — use XIRR instead.
Is CAGR the same as annual return?
Not always. CAGR assumes smooth compounding; actual annual returns in equities fluctuate. CAGR is the geometric mean of yearly returns.
What is a good CAGR?
For Indian equity mutual funds over 10+ years, a CAGR of 11–14% is considered healthy. Debt funds and FDs typically deliver 5–8%.