CAGR stands for Compound Annual Growth Rate: the single, constant yearly growth rate that would take an investment from its starting value to its ending value over a set number of years, with growth compounding each year. It smooths out the ups and downs — an investment that doubled in 5 years has a CAGR of about 14.87%, whether it grew evenly or in bursts.

How do I calculate CAGR for a stock or mutual fund?

Take the value at the end divided by the value at the start, raise it to the power of 1 divided by the number of years, subtract 1, and multiply by 100. Or enter the three numbers above. This works for a stock, fund NAV or portfolio bought once and held. If you added money at different times, as with a monthly SIP, CAGR isn't accurate — use XIRR, which weights each cash flow by its date.

What is the difference between CAGR and average annual return?

An average adds up yearly returns and divides by the number of years, ignoring compounding, so it overstates growth when returns swing. If an investment gains 50% one year and loses 50% the next, the average return is 0%, but $1 becomes $1 — a CAGR of about -13.4% a year. CAGR is the figure that matches what your money actually did.

Why is CAGR important?

CAGR provides a smoothed annual growth rate that removes volatility, making it easier to compare investments with different time horizons and evaluate long-term performance.

What is the difference between CAGR and absolute return?

Absolute return measures total growth over the entire period, while CAGR expresses it as an annualised rate, making comparisons across different timeframes more meaningful.

Does CAGR account for volatility or risk?

No. CAGR only looks at the start and end values, so it can't tell you how bumpy the path was. Two investments with the same CAGR can have very different volatility — pair it with standard deviation or a year-by-year return chart for the full picture.

Can CAGR be negative?

Yes — if the final value is lower than the initial value, CAGR comes out negative, reflecting an average annual loss over the period rather than growth.

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CAGR Calculator

Calculate Compound Annual Growth Rate (CAGR) for investments, stocks, mutual funds, and business growth.

Initial Investment$10,000

Final Value$20,000

Investment Duration (Years)5 Years

Compound Annual Growth Rate

14.87%

Initial Value$10,000

Final Value$20,000

Disclaimer: CAGR calculations are based on the inputs provided and are for illustrative purposes only. Past performance does not guarantee future returns. Actual investment returns may vary. CAGR does not account for volatility or risk. Please consult a financial advisor for personalised investment advice.

What Is CAGR?

CAGR (Compound Annual Growth Rate) measures the average annual growth rate of an investment over a specific time period. It helps investors understand long-term investment performance more accurately than simple returns, smoothing out volatility and providing a clear annualised figure.

CAGR answers one specific question: "what constant annual return, compounded every year, would have produced this same total result?" It's a smoothing tool, not a description of the actual ride — two investments can have identical CAGR over five years while one swung wildly year to year and the other grew steadily, so CAGR alone doesn't tell you anything about volatility or risk along the way.

How Is CAGR Calculated?

CAGR uses this formula:

CAGR = [(Final Value / Initial Value)^(1/N) − 1] × 100

Here N is the number of years between the two values. An investment that grew from $1,040 to $2,080 over 6 years has a CAGR of about 12.2% — even though the actual year-by-year path could have included both sharp gains and losing years along the way. Always check what start and end dates a CAGR figure uses before comparing it across sources — a CAGR measured from a market bottom to a peak will look far better than the same period measured peak-to-peak.

CAGR example: what a return really means

Suppose you bought a stock or fund for $520 and it's worth $1,040 five years later. The total gain is 100%, but the more useful number is the yearly rate: ($1,040 ÷ $520)^(1/5) − 1 = 14.87% a year. That's the figure to compare against a fixed deposit at 7% or an index fund's long-run return — the 100% total alone can't be compared with anything held for a different length of time.

CAGR also shows why average returns mislead. A fall of 50% needs a gain of 100% to recover, so volatile investments compound slower than their average suggests. When you compare funds or stocks, use the same start and end dates for each, and treat CAGR as the summary of the outcome — not a forecast of the next five years.

Benefits Of CAGR Analysis

Compare Investments

CAGR helps compare investment performance across stocks, mutual funds, businesses, and assets on a consistent annualised basis.

Long-Term Analysis

Investors can evaluate long-term wealth growth more effectively using annualized returns rather than absolute returns.

Goal Setting

CAGR helps set realistic return expectations and plan future investment goals.

Performance Tracking

Track investment performance over multiple years to assess strategy effectiveness.

LessonUnderstanding CAGR — The single smoothed number that makes messy year-to-year returns comparable — and where it can mislead.
CalculatorRate of Return Calculator — The annualized return between a starting and an ending value.

Common questions

It depends on the investment type, market conditions, and level of risk. Historically, stock markets have delivered strong long-term returns, while fixed-income investments generally provide lower but more stable returns.