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The Compound Annual Growth Rate (CAGR) is the average annual growth rate of an investment over a specific period, assuming the returns are compounded yearly. It helps investors measure the consistent rate of return over time, smoothing out fluctuations in yearly performance.
For example, if an investment grows from ₹1,00,000 to ₹2,00,000 in 5 years, its CAGR helps determine the average annual growth rate rather than individual yearly returns.
CAGR is widely used in mutual funds, stocks, and business performance analysis, providing a clear comparison of different investment options. It gives investors an idea of how an investment has performed over a period, making it easier to evaluate long-term returns.
The CAGR formula is:
CAGR = (Maturity Value / Investment Value)) ^ (1/n) −1
Where:
For example, if an investment grows from ₹50,000 to ₹1,00,000 in 5 years, the
CAGR is:
CAGR = (1,00,000 / 50,000) ^ ⅕) −1 =14.87%
It shows that the investment grew at an average annual rate of 14.87%. CAGR is useful because it eliminates the effect of short-term market volatility and gives a clearer picture of growth trends.
Using Jainam’s CAGR Calculator is simple and efficient:
For example, if a user enters:
The calculator will instantly compute the CAGR, which is 13.99%.
Jainam’s CAGR Calculator simplifies complex calculations and helps investors analyze returns on stocks, mutual funds, and business growth efficiently.
Yes, a CAGR Calculator provides precise results as long as the correct inputs are provided. It follows a standard mathematical formula used in financial analysis, ensuring reliability.
However, CAGR does not account for market volatility or yearly fluctuations. It only shows the average annual growth rate, assuming steady growth over the period.
For example, if an investment rose 20% in the first year, dropped 10% in the second year, and grew 30% in the third year, the CAGR will not reflect these variations but will show a smoothed annual return rate.
Thus, while accurate for long-term performance analysis, CAGR should be used along with other financial metrics for a complete investment evaluation.
A CAGR Calculator provides several advantages, including:
For example, if two mutual funds show 15% and 18% CAGR, the investor can make a better decision based on consistent returns over time.
Yes, CAGR can be negative when an investment’s maturity value is lower than its beginning value. This indicates an average annual decline over the given period.
For example, if an investment of ₹1,00,000 drops to ₹80,000 in 5 years, the CAGR will be -4.36%.
Negative CAGR is a sign of poor performance and is often seen in underperforming stocks, declining businesses, or recession-hit markets. However, investors should analyze the reasons behind the negative growth before making decisions
Absolute Return calculates the total percentage change in investment value, while CAGR shows the average annual growth rate.
For example:
Investment A: ₹1,00,000 → ₹2,00,000 in 5 years
Absolute Return:
[(2,00,000−1,00,000) / 1,00,000 ] × 100 = 100%
CAGR:
(2,00,000/1,00,000)^ (1/5) − 1 = 14.87%
CAGR is more reliable for long-term analysis because it accounts for compounded growth, while absolute return does not consider the time factor.
While CAGR works best for long-term investments (3+ years), it can be used for short-term analysis. However, it may not reflect actual market volatility in shorter periods.
For example, if a stock grows from ₹500 to ₹700 in 1 year, the CAGR is 40%, but this does not mean it will grow at the same rate in future years.
For short-term investments, other metrics like annualized returns or volatilityadjusted returns may be more useful.
A good CAGR depends on the investment type and market conditions:
For example, an equity mutual fund with a CAGR of 14% over 10 years is considered excellent. However, investors should compare CAGR with industry benchmarks before making investment decisions.
No, CAGR does not account for inflation. It only measures the nominal growth rate, meaning it does not reflect the real purchasing power of returns.
For example, if an investment grows at 12% CAGR, but inflation is 6%, the real return is only 6%.
To calculate the real CAGR, investors can use:
Real CAGR = [(1+CAGR) / (1+Inflation Rate)] −1
This helps investors understand whether their returns are beating inflation and maintaining true value over time.
To compute CAGR to annual growth, use the formula: CAGR = (Maturity Value / Investment Value)) ^ (1/n) −1. Investment Value represents the initial investment amount, Maturity Value represents the investment’s value at the end of the period and n stands for the number of years of investment.
A good CAGR depends on the investment type. In equities, 12-15% CAGR is considered strong, while for fixed-income investments, 6-8% CAGR is reasonable. Higher returns often come with increased risk.
CAGR helps investors measure consistent annual growth over time, smoothing out market fluctuations. It provides a clearer picture of investment performance than simple returns.
A 5-year CAGR represents the average annual growth rate of an investment over five years, assuming constant yearly returns. It helps assess long-term performance.
Market CAGR refers to the compound annual growth rate of an entire market or industry, indicating how fast it is expanding over a specific period.
CAGR is crucial for comparing investment options, tracking portfolio growth, and evaluating long-term performance, making it a reliable metric for decision-making.
CAGR measures annualized growth over time, while absolute returns show total percentage growth without considering time, making CAGR more useful for long-term comparisons.
Yes, CAGR can be negative if the final investment value is lower than the initial value, indicating a decline in investment performance over the period.
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