CAGR Calculator Guide
What is a CAGR Calculator?
A CAGR (Compound Annual Growth Rate) Calculator helps investors and businesses estimate the annual growth rate of an investment
over a specified period, considering the effect of compounding. It provides a smoothed rate of
return, giving a clearer picture of the investment's performance over time.
How Does the CAGR Calculator Work?
The CAGR calculator works using the following formula:
CAGR = [(Final Value ÷ Initial Value)^(1 ÷ n) -
1] × 100
Where:
- Initial Value = Initial investment
amount
- Final Value = Final investment value
- n = Number of years of the
investment
Example:
If you invest ₹10,000, and the value grows to ₹100,000 over 5 years:
- Initial Value = ₹10,000
- Final Value = ₹100,000
- n = 5
CAGR = [(100,000 ÷ 10,000)^(1 ÷ 5) - 1] × 100 =
58.49%
Step-by-Step Calculation:
- Divide Final Value by Initial Value: 100,000 ÷ 10,000 = 10
- Take the 5th root of 10: 10^(1 ÷ 5) ≈ 1.5849
- Subtract 1: 1.5849 - 1 =
0.5849
- Multiply by 100 to convert to percentage: 0.5849 × 100 = 58.49%
Real-Life Use Cases:
- Investment Growth: Evaluating the
annualized growth of stocks, mutual funds, or real estate.
- Business Revenue Analysis: Understanding
how a company’s revenue has grown over a period.
- Market Performance Comparison: Comparing
the performance of different asset classes over time.
Benefits of Using a CAGR Calculator
- Provides a consistent measure of annual growth.
- Helps evaluate investment performance over time.
- Allows comparison of different investment options.
- Useful for setting realistic investment goals.
FAQs on CAGR Calculator
- What is a good CAGR for investments?
A CAGR between
8% and 12% is considered good for
long-term equity investments in India.
- Can CAGR be negative?
Yes, a negative
CAGR indicates a decline in the investment value over time.
- How does CAGR differ from absolute returns?
CAGR measures the annualized growth rate, while absolute returns reflect the
total percentage gain or loss over the entire
investment period.
- Is CAGR useful for SIP investments?
No,
CAGR is best for lump sum investments. For
SIPs, the XIRR (Extended Internal Rate
of Return) metric is more accurate.
- What factors affect CAGR?
Market volatility, interest rates, and
investment duration are key factors that impact
CAGR.
