CAGR (Compound Annual Growth Rate) is the rate at which an investment would have grown if it grew at a steady annual rate. It smooths out the volatility of year-to-year returns to give a single, meaningful number representing the investment's growth trajectory. CAGR is the most widely used metric to evaluate and compare investment performance over time.
Mutual funds, stocks, business revenues, and economic indicators are all commonly measured using CAGR. When a mutual fund advertises "18% CAGR over 10 years," it means a ₹1 lakh investment would have grown to approximately ₹5.23 lakh over that period.
CAGR Formula
CAGR FormulaCAGR = (Final Value / Initial Value)^(1/n) − 1
n = Number of years | Result expressed as a percentage
Absolute Return = (Final − Initial) / Initial × 100%
CAGR vs Absolute Return vs XIRR
Metric
What it Shows
When to Use
Absolute Return
Total % gain/loss from start to end
Short period comparisons
CAGR
Annualised growth assuming constant rate
Lumpsum investments, fund comparison
XIRR
Annualised return for irregular cash flows
SIP investments with multiple buy/sell dates
Rolling Returns
CAGR calculated over multiple overlapping periods
Assessing consistency of fund performance
CAGR Calculation — Worked Example
📘 Investment grew from ₹1,00,000 to ₹3,00,000 over 5 years
Initial Value
₹1,00,000
Final Value
₹3,00,000
Period
5 years
Formula applied
(3,00,000 ÷ 1,00,000)^(1/5) − 1
CAGR
24.57% per year
Absolute Return
200% over 5 years
How to Calculate CAGR in Excel
Excel has no dedicated CAGR function. Use the power formula:
Example: =(B2/B1)^(1/5)-1 where B1=₹1,00,000, B2=₹3,00,000, period=5 years. Format cell as Percentage.
For mutual funds with multiple SIP transactions, use XIRR instead — it accounts for the timing of each cash flow and gives a more accurate annualised return figure than simple CAGR.
Frequently Asked Questions
Simple average return can be misleading. If a fund gains 100% in year 1 and loses 50% in year 2, the simple average is 25% — but you're back to where you started (₹1L → ₹2L → ₹1L). CAGR correctly shows 0% for this scenario. CAGR accounts for the compounding effect and gives the true annualised rate of return.
For equity funds over a 10-year period: CAGR above 12% is considered good; above 15% is excellent. Large-cap index funds (Nifty 50) have delivered approximately 12–13% CAGR over 15-20 year periods. Mid-cap and small-cap funds have historically delivered 15–18% CAGR but with much higher volatility. For debt funds, 6–8% CAGR is typical.
XIRR (Extended Internal Rate of Return) is used when you have multiple cash flows at irregular intervals — like SIP investments made on different dates, or partial withdrawals. CAGR works only for a single investment at one time and one redemption at another. For evaluating your SIP portfolio returns, always use XIRR, not CAGR. Most investment platforms and mutual fund statements show XIRR returns for SIPs.
📋 Disclaimer & Source: All data and calculations on this page are for informational purposes only and do not constitute financial advice. Rate data sourced from Ministry of Finance, Government of India and RBI notifications. Last reviewed: April 15, 2026. Consult a SEBI-registered advisor before investing. · Full Disclaimer