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Quick answer: CAGR, or Compound Annual Growth Rate, is the steady annual growth rate that would turn an investment's starting value into its ending value over a chosen period. Use a CAGR calculator to compare point-to-point performance across investments held for the same length of time. Do not use CAGR for SIPs, irregular cash flows, or as a promise of future returns.
CAGR answers a high-intent question: "What annual return did my money effectively earn?" It converts a multi-year gain into one comparable annualised percentage, even when the investment rose and fell along the way.
Use the free Dhan Saarthi CAGR Calculator if you already know the initial value, final value and holding period.
CAGR = (Final Value ÷ Initial Value)1 ÷ Years − 1
Multiply the result by 100 to express it as a percentage. The formula assumes one starting amount, one ending amount and no intermediate deposits or withdrawals.
Suppose you invested ₹5,00,000 and its value became ₹8,00,000 after four years.
CAGR = (8,00,000 ÷ 5,00,000)1/4 − 1 = approximately 12.47% per year.
This does not mean the investment returned exactly 12.47% every year. It may have gained 25% in one year and fallen in another. CAGR smooths the entire journey into one annualised rate.
Assumption: This point-to-point example ignores taxes, fees, exit load and additional cash flows. Past performance is not a guarantee of future returns.
| Your Question | Use | Why |
|---|---|---|
| Return with SIPs or irregular cash flows | XIRR | Each cash flow has a different date |
| How long a withdrawal corpus may last | SWP calculator | Withdrawals change the balance monthly |
| How to phase a lumpsum into another fund | STP calculator | Two funds and repeated transfers are involved |
Absolute return measures the total percentage gain without considering time. CAGR includes the holding period. A 60% gain over four years sounds large, but its CAGR is about 12.47%. For investments held longer than one year, CAGR usually gives the more useful comparison.
1. Enter the amount invested at the start.
2. Enter the current or redemption value.
3. Enter the holding period in years.
4. Review the annualised CAGR and compare only with investments measured over the same dates.
Educational content only. Investment returns are market-linked where applicable. Consider product costs, taxes, risk and suitability before acting.
Working out CAGR by hand means digging up your original investment value, the current value, and the exact holding period — and then applying the compounding formula correctly. Dhan Saarthi pulls your actual purchase and current values from your portfolio, so you can see the real annualised return on any lumpsum without doing the maths yourself.
It also helps you compare that CAGR against the right benchmark or goal assumption, so you know whether an investment has actually kept pace with what you expected from it.
CAGR is the right tool for comparing lumpsum investments, portfolios, or benchmarks over the same time period, converting a bumpy multi-year journey into one clean annualised number — but it's the wrong tool for SIPs or irregular cash flows, where XIRR gives the accurate picture, and it should never be read as a promise of what an investment will earn next.
A 12% CAGR means the investment grew at an annualised compounded rate of 12% between the chosen start and end dates. Actual yearly returns may have been higher, lower, or negative.
Not exactly. A one-year return measures one specific year. CAGR smooths the total point-to-point return across multiple years into one annualised compounded rate.
CAGR is not suitable for SIPs because every instalment has a different investment date. XIRR is generally the appropriate measure for multiple or irregular dated cash flows.
A higher CAGR shows faster historical growth, but it does not show volatility, drawdowns, risk, fees, tax, or suitability. Compare risk and time period along with return.
No. CAGR describes past point-to-point performance. It is not a guaranteed or forecast return, especially for market-linked investments.
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