Question 1

What is CAGR?

Accepted Answer

CAGR (Compound Annual Growth Rate) is the rate at which an investment would have grown if it grew at a steady rate on an annually compounded basis. It is used to compare investment performance over time.

Question 2

What is the CAGR formula?

Accepted Answer

CAGR = [(Ending Value / Beginning Value)^(1 / Number of Years) – 1] × 100. It gives the smoothed annual growth rate of an investment over a specified time period.

Question 3

What is a good CAGR for mutual funds?

Accepted Answer

For equity mutual funds in India, a CAGR of 12–15% over a 5–10 year period is generally considered good. Large-cap funds typically return 10–12%, while mid/small-cap funds may return 14–18% with higher volatility.

Question 4

What is the difference between CAGR and absolute return?

Accepted Answer

Absolute return measures the total percentage gain or loss on an investment without accounting for time. CAGR annualizes the return, making it comparable across different time periods. CAGR is more useful for comparing investments held for different durations.

Question 5

Can CAGR be negative?

Accepted Answer

Yes. If the ending value is less than the beginning value, the CAGR will be negative, indicating an investment that declined in value over the period.

Question 6

Is CAGR the same as annualized return?

Accepted Answer

Yes. CAGR and annualized return are equivalent concepts — both smooth out volatility to show what the steady annual growth rate would have been to achieve the same total return.

Year	Value	Growth
Start	₹1.00 L	—
Year 1	₹1.12 L	+12.1%
Year 2	₹1.26 L	+25.7%
Year 3	₹1.41 L	+41.0%
Year 4	₹1.58 L	+58.1%
Year 5	₹1.77 L	+77.3%
Year 6	₹1.99 L	+98.8%
Year 7	₹2.23 L	+122.9%
Year 8	₹2.50 L	+150.0%

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