CAGR (Compound Annual Growth Rate) is the annualised return of an investment, assuming profits are reinvested each year. Formula: CAGR = (Final Value ÷ Initial Value)^(1÷Years) − 1. It is the standard metric for comparing investments across different time periods in India.

What is a good CAGR for mutual funds in India?

For equity mutual funds in India, 10–12% CAGR over 5–10 years is good for large cap or index funds. Mid and small cap funds have historically delivered 14–18% CAGR over long periods but with higher volatility. Anything above 15% sustained over 10 years is exceptional.

Should I use CAGR or XIRR for SIP returns?

Use XIRR for SIP investments, not CAGR. CAGR is for a single lump sum with one start and one end value. SIPs have multiple instalments on different dates, so XIRR (Extended Internal Rate of Return) is the correct metric as it accounts for the timing of each cash flow. Use BullWiser's free XIRR Calculator for accurate SIP return analysis.

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📚 Understand This Calculator

What is CAGR? Think of it as your investment's annual report card

Imagine you're judging two runners: one ran 5 km in 30 minutes, another ran 10 km in 70 minutes. Who's faster? You need to normalise for distance. CAGR does the exact same thing for money — it tells you the steady annual growth rate your investment achieved, regardless of how many years it ran.

The formula is simple: how many times did your money multiply, and over how many years? CAGR converts that into one clean percentage you can compare with any other investment.

🇮🇳 Real-Life Example

Ramesh invested ₹50,000 in a mutual fund in 2018. In 2024 (6 years later), it grew to ₹1,00,000 — exactly double. His CAGR = 12.25% per year.

His friend Suresh put the same ₹50,000 in a bank FD at 6.5% for 6 years. Suresh's corpus: ₹72,750. Ramesh's extra ₹27,250 came purely from those 5.75 extra percentage points per year — compounding over 6 years.

Another friend Priya showed off: "My stocks gave 80% return!" — but she'd held them for 7 years. Her CAGR = 8.7%. Ramesh's fund beat her too, and she didn't even know it.

💡 The Key Insight

CAGR ignores the scary dips and exciting peaks in between — it only cares about where you started and where you ended, and how many years passed. This makes it the fairest way to compare two investments that ran for different durations. Always ask for CAGR, not "total return," when comparing funds.

⚠️ Common Mistake

Using CAGR for SIP investments. CAGR only works correctly for a single lump sum (one entry, one exit). If you invest every month via SIP, use XIRR instead — it accounts for the different time each instalment was invested.

📈 Investment Details

Initial Investment Value (₹)

The amount you invested at the start.

Final / Current Value (₹)

The current or redemption value.

Investment Duration (Years)

How many years you were invested.

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How is CAGR Calculated?

CAGR strips out the volatility and gives you the smooth, consistent growth rate that would have produced the same final result.

CAGR = (Final Value / Initial Value)^(1/Years) − 1

Step-by-Step Example

Given: Initial = ₹1,00,000 · Final = ₹3,20,000 · Duration = 10 years

Step 1: Ratio = 3,20,000 ÷ 1,00,000 = 3.2

Step 2: CAGR = 3.2^(1/10) − 1 = 3.2^0.1 − 1

Step 3: = 1.1233 − 1 = 0.1233 = 12.33% CAGR

What is a Good CAGR?

CAGR Range	Asset Class Benchmark	Verdict
Below 6%	Savings account / FD	Losing to inflation
6% – 10%	Debt funds, PPF	Safe, inflation-beating
10% – 14%	Large cap equity funds	Good equity return
14% – 18%	Mid/small cap equity	Excellent long-term
Above 18%	Top-quartile active funds	Exceptional — verify sustainability

Frequently Asked Questions

What is the difference between CAGR and absolute return? ▾

Absolute return is the total percentage gain regardless of time — e.g., 120% gain over 10 years. CAGR converts this into a per-year rate, making it comparable across different investment durations. A 120% absolute return over 10 years equals approximately 8.3% CAGR.

Why is CAGR used for mutual funds and not simple return? ▾

Simple return doesn't account for compounding or duration. A fund that gives 50% in 2 years and a fund that gives 200% in 10 years cannot be compared using simple returns. CAGR levels the playing field by expressing both as an equivalent annualised rate.

Is CAGR the same as XIRR for mutual fund SIPs? ▾

No. CAGR works for a single lump sum investment (one entry, one exit). XIRR is used for multiple cash flows like SIPs where money is invested at different dates. For SIP returns, always use XIRR — CAGR will give incorrect results.

Can CAGR be negative? ▾

Yes. If the final value is less than the initial investment, CAGR is negative, indicating a loss on an annualised basis. For example, if ₹1 lakh invested becomes ₹80,000 over 5 years, the CAGR is approximately −4.3%.

What are the limitations of CAGR? ▾

CAGR smooths out volatility — it doesn't show you how rough the journey was. A fund with 12% CAGR may have fallen 50% in one year and recovered sharply. Always pair CAGR with standard deviation or max drawdown to get the full risk picture.

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