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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.
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.
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.
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.
We'll instantly compute your CAGR, absolute return, and wealth multiplier.
CAGR strips out the volatility and gives you the smooth, consistent growth rate that would have produced the same final result.
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
Investors in India frequently confuse CAGR, absolute return, and XIRR — three different ways of expressing investment performance. Each answers a different question, and using the wrong one can lead to badly misread fund returns.
Absolute return is the simplest: it tells you the total percentage gain from start to end, ignoring how long you held the investment. If you invested ₹1 lakh and it grew to ₹2 lakh, your absolute return is 100%. This is useful only for very short periods (under 1 year) where annualising doesn't add value.
CAGR (Compound Annual Growth Rate) converts a multi-year absolute return into a per-year equivalent, assuming the returns were smoothly compounded. It works correctly only for a single lump-sum investment with one entry date and one exit date. CAGR is the standard for comparing mutual fund NAV performance, stock price growth, or any point-to-point investment.
XIRR is the internal rate of return for multiple irregular cash flows — it is what you should always use for SIPs, where you invest a fixed amount every month at different NAVs. Applying CAGR to a SIP portfolio gives a meaningless number because your cost basis isn't a single point in time. BullWiser's XIRR calculator handles this correctly.
| Metric | Use When | Don't Use When |
|---|---|---|
| Absolute Return | Holding period < 1 year | Comparing multi-year investments |
| CAGR | Single lump-sum, point-to-point | SIPs or multiple cash flows |
| XIRR | SIPs, multiple investments/withdrawals | Single lump-sum (CAGR is simpler) |
When comparing mutual funds, always compare CAGR over the same time period — ideally 1-year, 3-year, 5-year, and 10-year periods simultaneously. A fund with 20% CAGR over 3 years is not comparable to one with 15% CAGR over 10 years without understanding what market cycle each period covered. The 3-year fund may have simply benefited from a strong bull market.
A second critical insight: comparing a fund's CAGR to its benchmark index's CAGR over the same period tells you alpha — the value added (or destroyed) by the fund manager. A large-cap fund with 12% CAGR sounds impressive, but if Nifty 50 delivered 14% in the same period, the fund underperformed. This is why BullWiser's MF Analyser shows benchmark-relative performance alongside raw CAGR for every fund.
Finally, CAGR is a point-to-point metric — it is sensitive to the start and end dates chosen. A fund that crashed in March 2020 (COVID) and was measured from that date will show exceptional CAGR purely due to the low base. Always cross-check rolling returns (CAGR calculated over many overlapping periods) to get a more robust view of consistent performance.