CAGR stands for Compound Annual Growth Rate. It's the single most useful number for comparing the performance of any investment over time — whether it's a mutual fund, stock, real estate, or a business.
The CAGR Formula
CAGR = [(Ending Value / Beginning Value)^(1/n) – 1] × 100
Where n = number of years.
Worked Example
You invested ₹1,00,000 in a mutual fund in 2020. By 2025, it grew to ₹1,76,234.
- Beginning Value = ₹1,00,000
- Ending Value = ₹1,76,234
- n = 5 years
- CAGR = [(1,76,234 / 1,00,000)^(1/5) – 1] × 100 = 12% p.a.
Why CAGR is Better Than Simple Returns
Simple return doesn't account for compounding. If an investment grew 50% in 5 years, that's 10% simple return — but only 8.45% CAGR. CAGR gives you the true "per year" growth rate that accounts for compounding.
CAGR vs XIRR — What's the Difference?
- CAGR: Use for lumpsum investments with one starting and one ending point
- XIRR: Use for SIP investments with multiple cash flows at irregular intervals
Most mutual fund apps show XIRR for SIP returns and CAGR for lumpsum returns.
Good CAGR Benchmarks for India
| Asset Class | Historical CAGR |
|---|---|
| Sensex (10 year) | 12–14% p.a. |
| Large Cap Mutual Funds | 10–13% p.a. |
| Mid Cap Mutual Funds | 14–18% p.a. |
| Real Estate (metro) | 6–10% p.a. |
| Fixed Deposit | 6.5–8% p.a. |
| PPF | 7.1% p.a. |