CAGR formula
₹1,00,000 growing to ₹2,00,000 in 5 years is a CAGR of about 14.87%, even though the total return is 100%.
CAGR vs total return
Total return tells you how much the value grew overall. CAGR tells you how fast it grew each year. Use CAGR to compare investments held for different lengths of time, such as a stock held 3 years against a fund held 7 years.
Limits of CAGR
CAGR smooths out the ups and downs. Two investments with the same CAGR can have taken very different rides. It also ignores money added or withdrawn along the way; for those, use XIRR.
Frequently asked questions
What is a good CAGR?
It depends on the asset. Compare it with what a safe option like a deposit earns, with inflation, and with a broad market index over the same years.
Can CAGR be negative?
Yes. A negative CAGR means the value fell on average each year.
Can I enter part years?
Yes. Type years with decimals, such as 2.5.
What is the difference between CAGR and XIRR?
CAGR assumes one amount in and one amount out. XIRR handles several investments and withdrawals on different dates.