CAGR Calculator

CAGR Calculator - Calculate Your True Annualised Investment Return

CAGR, or compound annual growth rate, tells you the single steady annual rate that would take an investment from its starting value to its ending value over a given period, smoothing out all the ups and downs along the way. Use the calculator above to work it out for any investment, fund or business metric.

What Is CAGR (Compound Annual Growth Rate)?

CAGR answers a specific question: if your investment had grown at exactly the same rate every single year, what would that rate have to be to get you from where you started to where you ended up? Real investments rarely grow in a straight line, some years are up sharply, others are flat or negative, but CAGR replaces all that variation with one smooth number that is easy to compare across investments, funds or time periods. It is one of the most common ways to judge how a stock or fund has actually performed, which is why our basics of stock investing guide covers it alongside the other performance measures worth understanding before you compare funds.

How Is CAGR Calculated? (Step-by-Step Formula)

The formula is CAGR equals (ending value divided by beginning value) raised to the power of (1 divided by the number of years), minus 1. Take the ratio of what you ended with to what you started with, take the nth root of that ratio where n is the number of years, then subtract 1 and convert the result to a percentage.

As an example, an investment that grows from Rs 5,000 to Rs 25,000 over 8 years has a CAGR of approximately 22.28 percent. Notice this is very different from simply asking how much the investment grew in total, which is a separate question covered in the next section.

If you already know a rate and want to project it forward, or work backward from a target amount, our future value calculator and present value calculator use the same compounding logic in a more general form.

What Is the Difference Between CAGR and Absolute Return?

Absolute return simply measures total growth from start to end, with no regard for how long it took. Using the same example, Rs 5,000 growing to Rs 25,000 is a 400 percent absolute return, which sounds dramatic, but that number alone does not tell you whether it happened over 2 years or 20. CAGR answers the time adjusted version of the same question: spread evenly across 8 years, that same growth works out to about 22.28 percent a year. Absolute return is useful for a quick sense of total growth, but CAGR is the number to use whenever you are comparing investments held for different lengths of time.

Can CAGR Be Used to Measure SIP Returns?

Not accurately, at least not with the standard CAGR formula. CAGR assumes a single amount invested once at the start and left untouched until the end. A SIP involves a separate amount invested every month, each with a different amount of time to grow, so a plain CAGR calculation on the total invested and final value will understate or overstate your actual return depending on the pattern of contributions. The correct measure for a SIP or any series of cash flows at different dates is XIRR, which solves for a single annualised rate across multiple transactions on different dates rather than assuming one lump sum investment.

How Do You Calculate CAGR in Excel?

Excel does not have a function called CAGR, but it has more than one way to get the same answer. The RRI function is built exactly for this: RRI(number of years, beginning value, ending value) returns the rate directly. Alternatively you can write the formula yourself as POWER(ending value divided by beginning value, 1 divided by number of years) minus 1, which mirrors the calculation this page uses. One function that does not calculate the CAGR, despite sometimes being suggested for it, is XIRR. XIRR solves irregular cash flows on different dates and is the right tool for something like SIP returns, not for a single beginning and ending value. If you want a structured walkthrough of this and other Excel techniques used in investing, our Advanced Excel course covers exactly this kind of calculation in context.

FAQs

1. What is CAGR and how is it calculated?

CAGR is the steady annual rate that would take an investment from its starting value to its ending value over a set period. It is calculated as (ending value divided by beginning value) raised to the power of 1 divided by the number of years, minus 1.

2. What is the difference between CAGR and absolute return?

Absolute return measures total growth with no regard for how long it took to happen. CAGR spreads that same growth evenly across each year, so it is the number to use whenever you are comparing investments held for different lengths of time.

3. Can CAGR be used for SIP returns?

Not with the standard formula, since CAGR assumes one amount invested once and left untouched. A SIP involves separate contributions made at different times, so XIRR is the correct measure for that kind of return, not CAGR.

4. How do I calculate CAGR in Excel?

Use RRI(number of years, beginning value, ending value), or write it manually as POWER(ending value divided by beginning value, 1 divided by number of years) minus 1. XIRR is not the right function for this, since it is built for irregular cash flows rather than a single beginning and ending value.