What is CAGR?
CAGR is the one number that cuts through misleading returns. A fund that "doubled in 5 years" sounds great — until you calculate the CAGR and find it is only 14.9%. Here is everything you need to know.
Compound
Annual Growth Rate
Formula
(End/Start)^(1/N) − 1
Best for
Lumpsum comparisons
XIRR for
SIP investments
CAGR in Plain English
Imagine you invested ₹1,00,000 in a mutual fund 5 years ago. Today it is worth ₹2,00,000. The absolute return is 100%. But what was the annual growth rate? It was not 20% per year (100% ÷ 5) — because compounding means the second year earns returns on the first year's gains too.
CAGR tells you the single annual rate that would take your starting value to your ending value if the returns were perfectly consistent every year. It removes the noise of volatile year-by-year performance and gives you one comparable number.
The CAGR Formula
CAGR = (End Value / Start Value)^(1/N) − 1
Step-by-Step Examples
Example 1: ₹1 lakh doubled in 5 years
Start
₹1,00,000
End
₹2,00,000
Years
5
(2,00,000 ÷ 1,00,000)^(1/5) − 1 = 2^0.2 − 1 = 1.1487 − 1
14.87% CAGR
A common mistake: dividing 100% by 5 gives 20%, which is wrong. The correct annualised rate is 14.87%.
Example 2: ₹50,000 grew to ₹1.8 lakh in 10 years
Start
₹50,000
End
₹1,80,000
Years
10
(1,80,000 ÷ 50,000)^(1/10) − 1 = 3.6^0.1 − 1 = 1.1366 − 1
13.66% CAGR
This is roughly in line with Nifty 50 long-term returns. Not spectacular, but reliable for an index fund.
Example 3: ₹2 lakh FD grew to ₹2.48 lakh in 3 years
Start
₹2,00,000
End
₹2,48,832
Years
3
(2,48,832 ÷ 2,00,000)^(1/3) − 1 = 1.2442^0.333 − 1 = 1.0755 − 1
7.55% CAGR
This matches a typical FD interest rate, confirming CAGR works perfectly for comparing debt instruments too.
CAGR vs XIRR — Which to Use?
Use CAGR when…
- ✓You made a single lumpsum investment
- ✓Comparing two mutual funds over the same period
- ✓Looking at historical index returns
- ✓Evaluating FD vs equity over a fixed duration
Use XIRR when…
- ✓You have a monthly SIP (multiple cash flows)
- ✓Comparing your SIP returns to a fund's CAGR
- ✓You made additional top-up investments over time
- ✓Your investments had irregular dates and amounts
Nifty 50 CAGR — Historical Reference
| Period | Nifty 50 CAGR | Verdict |
|---|---|---|
| 1 year (2024–25) | ~14% | Strong year |
| 3 years (2022–25) | ~15% | Above average |
| 5 years (2020–25) | ~18% | Post-COVID bull run |
| 10 years (2015–25) | ~13% | Reliable long-term |
| 20 years (2005–25) | ~14% | Strong case for equity |
*Approximate figures based on publicly available NSE data. Past returns do not guarantee future performance.
CAGR FAQ
What is a good CAGR for a mutual fund? ▾
For equity funds over 5+ years, 12–15% CAGR is considered good in India. Small-cap funds may show 18–22% CAGR in bull markets but also fall harder. Compare a fund's CAGR to its benchmark (e.g., Nifty 50) — outperformance is what matters.
Can CAGR be negative? ▾
Yes. If your investment is worth less than you started with after N years, CAGR is negative. For example, ₹1L invested, now worth ₹70,000 after 5 years = CAGR of (0.7)^0.2 − 1 = −6.9%.
How do I calculate CAGR in Excel? ▾
Use the formula: =(End_Value/Start_Value)^(1/Years)-1. Format the cell as percentage. For example: =(B2/A2)^(1/C2)-1 where A2=start, B2=end, C2=years.
Is CAGR the same as average annual return? ▾
No. Average annual return adds up yearly returns and divides. CAGR compounds them. Example: +100% in year 1, −50% in year 2 = average of 25% but actual CAGR = 0% (you're back to the start).
Calculate Your CAGR
Find your exact annualised returns
Disclaimer: All projections are illustrative. Past performance is not a guarantee of future returns. © 2026 HQCalc.