What is CAGR? – Understand CAGR with Examples
A simple guide to Compound Annual Growth Rate for beginner investors.
When comparing investments, returns can look confusing. This is where CAGR helps. CAGR shows the average annual growth rate of an investment over time, assuming steady growth.
📌 What is CAGR?
CAGR (Compound Annual Growth Rate) is the rate at which your investment grows every year over a specific period, as if it grew at the same rate each year.
📈 Why CAGR is Important
- Helps compare different investments fairly
- Smooths out market ups and downs
- Shows long-term performance clearly
- Widely used in stocks, mutual funds, and portfolios
🧮 CAGR Formula (Simple)
CAGR = (Ending Value / Beginning Value)^(1 / Years) − 1
Don’t worry—most online calculators compute this automatically.
Want to measure annual investment growth? Use our CAGR Calculator to analyze long-term returns accurately.
👨💼 Real-Life Example of CAGR
Ali invested Rs. 100,000 in a mutual fund. After 5 years, the investment grew to Rs. 160,000.
Even though returns varied each year, the CAGR comes out to around 9.8% per year.
This means Ali’s investment grew as if it increased by 9.8% annually every year.
✅ When Should You Use CAGR?
- Comparing two mutual funds
- Analyzing long-term stock returns
- Evaluating SIP vs lump-sum growth
- Reviewing portfolio performance
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📘 Final Thoughts
CAGR is one of the most important metrics every investor should understand. It simplifies complex returns and helps you make smarter, long-term decisions.