Calculate the Compound Annual Growth Rate (CAGR) of your investments with AlphaQuark free CAGR calculator. Enter the initial value, final value, and time period to determine the annualized return rate.
What is CAGR: CAGR (Compound Annual Growth Rate) is the annualized rate of return that an investment would have achieved if it grew at a steady rate over a given time period. Unlike simple returns, CAGR accounts for compounding and provides a smoothed annual growth rate that removes the effects of volatility.
CAGR Formula: CAGR = (Ending Value / Beginning Value)^(1/Number of Years) - 1. For example, if an investment of Rs 1,00,000 grows to Rs 2,00,000 in 5 years, the CAGR is (200000/100000)^(1/5) - 1 = 14.87% per year. This means the investment grew at an equivalent steady rate of 14.87% annually.
Why CAGR Matters: CAGR is the standard metric for comparing investment performance across different instruments, time periods, and asset classes. It answers the question: "What annualized return did this investment deliver?" — making it easy to compare a 3-year stock return against a 7-year mutual fund return.
CAGR vs Absolute Returns: Absolute returns show the total percentage gain. CAGR shows the annualized equivalent. A 100% absolute return over 5 years equals a CAGR of 14.87% — much more useful for comparison than the headline 100% figure. Always compare investments using CAGR for an apples-to-apples analysis.
CAGR for Portfolio Evaluation: Research Analysts use CAGR to communicate model portfolio performance to clients. A model portfolio with a 3-year CAGR of 18% vs Nifty 50 CAGR of 12% over the same period clearly demonstrates alpha generation.
CAGR (Compound Annual Growth Rate) is the annualized rate of return for an investment over a given period. Formula: CAGR = (Ending Value / Beginning Value)^(1/Years) - 1. It smooths out year-to-year volatility to show the equivalent steady annual growth rate.
Absolute returns do not account for the time period. A 50% return over 2 years is very different from 50% over 10 years. CAGR annualizes the return, making it possible to compare investments across different time periods and asset classes on an equal basis.
Historically, Indian large-cap equities (Nifty 50) have delivered a CAGR of 12-14% over 10+ year periods. Mid-cap and small-cap indices have delivered 14-18% CAGR over similar periods. Individual stock and model portfolio performance varies based on stock selection and market conditions.