In this guide
This guide explains what CAGR measures, the three inputs it needs, the formula, two worked examples, how to use the CAGR Calculator, when CAGR helps and where it misleads.
- Beginning value, ending value and period
- The CAGR formula
- Worked examples, including uneven growth
- When CAGR is useful — and its limitations
- Common mistakes
What CAGR means
Investments rarely grow by the same amount each year. One year may be strong, the next negative. CAGR answers a simpler question: what constant yearly rate, compounded, would have produced the same start-to-finish result?
Because it is annualized and compounded, CAGR lets you compare growth over different periods on the same yearly basis. It is a mathematical summary, not a record of what happened in each individual year.
The three inputs
CAGR needs only three numbers.
- Beginning value: the amount at the start, such as the price you paid or the value on a starting date.
- Ending value: the amount at the end of the period.
- Investment period: the number of years between the two values. Part-years can be written as decimals, for example 2.5 years.
The CAGR formula
CAGR = (Ending value ÷ Beginning value)^(1 ÷ n) − 1, where n is the number of years. Multiply the result by 100 to express it as a percentage.
The ratio Ending ÷ Beginning tells you how many times the money multiplied. Raising it to the power 1 ÷ n spreads that multiplication evenly across each year, which is why the answer is a compounded yearly rate rather than a simple average.
Worked example: steady doubling
Hypothetical example: ₹1,00,000 grows to ₹2,00,000 in 5 years. The ratio is 2,00,000 ÷ 1,00,000 = 2. Then 2^(1 ÷ 5) ≈ 1.1487, so CAGR ≈ 0.1487, or about 14.87% a year.
Check it the other way: ₹1,00,000 × 1.1487⁵ ≈ ₹2,00,000. The total (absolute) return is 100%, but spread over five compounding years it works out to roughly 14.87% a year — not 20%, which is what dividing 100% by 5 would suggest.
Enter your own beginning value, ending value and number of years to get the CAGR, total return and multiple instantly.Open the CAGR CalculatorWorked example: uneven years
Hypothetical example: an investment of ₹1,00,000 moves to ₹1,50,000 after year 1 (+50%), falls to ₹1,20,000 after year 2 (−20%) and ends at ₹1,38,000 after year 3 (+15%).
CAGR = (1,38,000 ÷ 1,00,000)^(1 ÷ 3) − 1 ≈ 11.33% a year. The simple average of the three yearly returns is (50 − 20 + 15) ÷ 3 = 15%, which overstates the growth actually achieved. Not one of the three years returned 11.33% — CAGR only describes the smoothed path between the first and last values.
| Year | Actual value | Actual yearly change | Value at 11.33% CAGR |
|---|---|---|---|
| Start | ₹1,00,000 | — | ₹1,00,000 |
| Year 1 | ₹1,50,000 | +50% | ≈ ₹1,11,334 |
| Year 2 | ₹1,20,000 | −20% | ≈ ₹1,23,951 |
| Year 3 | ₹1,38,000 | +15% | ₹1,38,000 |
How to use the CAGR Calculator
Enter the initial value, the final value and the period in years. The CAGR Calculator shows the CAGR, the absolute growth, the total return, the simple average return per year and how many times the money multiplied, along with a chart of the smoothed growth path.
If you want to project forward instead — what a lump sum may grow to at an assumed rate — the Compound Interest Calculator is the better fit. For regular monthly investing, use the SIP Calculator, because CAGR on its own does not handle money added at different times.
When CAGR is useful
CAGR is at its best when there is one starting amount, one ending amount and no money added or withdrawn in between.
- Comparing the growth of two investments held over different periods.
- Summarising the growth of a single lump-sum investment from purchase to sale.
- Describing the trend in non-investment figures such as revenue or prices over several years.
- Sanity-checking a claimed return against start and end values you can verify.
Limitations of CAGR
Treat CAGR as one useful summary, not a complete picture of risk or return.
- It hides volatility: two investments with the same CAGR can have very different ups and downs.
- It ignores cash flows: extra deposits or withdrawals during the period distort it.
- It depends on the dates chosen: a different start or end point can change the answer considerably.
- It describes the past: a historical CAGR does not predict or guarantee future returns.
- It is usually before tax, costs and inflation unless you adjust the values yourself.
Common mistakes
Most errors come from applying CAGR to situations it was not designed for.
- Dividing the total return by the number of years instead of using the compounding formula.
- Using CAGR for SIPs or other investments with repeated contributions.
- Entering months as years, or rounding a 2.5-year period to 3.
- Assuming the investment grew by the CAGR every single year.
- Comparing a pre-tax CAGR with a post-tax return on another product.
Conclusion
CAGR condenses a start value, an end value and a period into one annualized growth rate, which makes comparisons easy. Remember that it is a smoothed figure: it says nothing about the path in between and does not promise anything about the future.