CAGR Calculator

What is CAGR and Why It Matters More Than Absolute Return

CAGR stands for Compound Annual Growth Rate. It tells you how fast an investment grows on average each year, assuming gains are reinvested. The key word is 'compound' — it accounts for the fact that returns in year 2 are earned on the returns from year 1, not just on the original capital.

Absolute return just measures total gain. If a mutual fund went from ₹1,00,000 to ₹2,00,000, the absolute return is 100%. But that number means very different things depending on whether it took 2 years or 10 years. CAGR cuts through that ambiguity — 100% in 2 years is ~41% CAGR, while 100% in 10 years is ~7.2% CAGR. One is exceptional; the other barely beats inflation.

CAGR is the correct metric for comparing any investment that grows over multiple years: stocks, mutual funds, real estate, fixed deposits, or your business revenue.

The CAGR Formula

CAGR is calculated as:

Example: Nifty 50 was at 5,000 in January 2014 and reached 22,000 in January 2024 (10 years).

• Multiplier = 22,000 ÷ 5,000 = 4.4x
• CAGR = 4.4^(1/10) − 1 = 1.1583 − 1 = 15.83%

That 15.83% CAGR accounts for all the volatility in between — the 2015 correction, the 2020 COVID crash, the 2022 rate hike selloff. It is the smoothed average growth rate, not a path.

Nifty 50 CAGR — Historical Reference

One of the most common use cases for CAGR in India is benchmarking portfolio returns against the Nifty 50. Here are approximate Nifty 50 CAGRs as of early 2025 (actual returns vary by exact entry/exit dates):

These numbers are why 12% is the standard equity assumption for long-term projections. It accounts for crashes, recoveries, and the inevitable periods of flat returns. If your own portfolio CAGR over 10+ years is below 10%, something needs to change — either the fund selection or your buying behaviour (panic selling destroys CAGR).

CAGR vs Absolute Return — Quick Reference

To convert between the two quickly:

Limitations of CAGR

CAGR assumes steady compounding. Real-world returns are lumpy — your mutual fund might return 40% one year and −20% the next. CAGR reports the geometric mean, which is useful for comparison but can mask severe volatility.

Two funds with identical 5-year CAGRs can have very different risk profiles. Always look at CAGR alongside standard deviation or maximum drawdown. A 15% CAGR with a 60% max drawdown (like small-cap funds) is psychologically very different from 15% CAGR with a 30% max drawdown (like flexicap funds).

CAGR is sensitive to start and end dates. Nifty's 1-year CAGR in April 2023 vs April 2024 differs dramatically because of where the measurement begins. Use rolling returns (3-year or 5-year rolling CAGR measured every month) for a more honest picture of a fund's consistency.