By Aditya GuptaAccounting & Finance EducatorLast reviewed May 31, 2026Source: AMFI
About this converter
This converter swaps between CAGR (Compound Annual Growth Rate) and the absolute return over a multi-year period. CAGR is the smoothed annual rate that would have produced the same end value if it grew uniformly every year. The formula: CAGR = (End / Start)^(1/years) − 1.
For Indian investors, CAGR is the most useful single comparison metric across instruments. Equity mutual funds quote 5-year and 10-year CAGRs. Direct stocks compute CAGR from purchase to sale. FD returns can be expressed as CAGR (with quarterly compounding). PPF, EPF, NPS all benchmark against equity CAGR. When somebody says “my flat doubled in 10 years” they’re reporting 7.18% CAGR — comparable to a high-yield FD, not a stellar return.
One caveat: CAGR is useless for SIPs because money is invested over time, not as a lumpsum. For SIP analysis, use XIRR which accounts for the timing of each monthly instalment. The CAGR↔XIRR difference can be 1-3 percentage points for the same fund and period — XIRR is the honest number for SIPs.
Frequently Asked Questions
What does CAGR mean?
Compound Annual Growth Rate — the equivalent constant annual rate that would have produced the actual final value. CAGR = (End/Start)^(1/years) − 1.
How is CAGR different from arithmetic average?
If a fund returns +30%, -20%, +30% over 3 years, arithmetic average is 13.3% but CAGR is only 10.1%. CAGR accounts for compounding losses, which simple averages don’t.
Why does CAGR underestimate volatility?
CAGR smooths over annual swings. A fund with 12% CAGR could have years ranging from -25% to +40%. Always look at standard deviation alongside CAGR for true risk picture.
Is CAGR useful for SIP returns?
No — for SIP, use XIRR (Extended Internal Rate of Return), which accounts for the timing of each instalment. CAGR assumes a single lumpsum at the start; XIRR handles uneven cash flows.
What’s a good CAGR for Indian equities?
Large-cap funds: 11-13% over 15+ year periods. Mid/small-cap: 13-16% with higher volatility. Index funds (Nifty 50): 11-12% net of expenses. Compare against an 8-9% benchmark (FD + RBI inflation target).
Initial Investment (₹)
CAGR (%)
Number of Years
Initial Value (₹)
Final Value (₹)
Number of Years
Initial Investment (₹)
Rate A (%)
Rate B (%)
Years
Formula
CAGR = (Ending Value / Beginning Value)^(1/n) − 1
Future Value = P × (1 + CAGR)^n
CAGR smooths out year-to-year volatility to show the steady rate at which an investment would have grown. It doesn’t reflect actual annual returns — an investment with 30% CAGR may have had +60%, -20%, +40% individual years. For SIP investments, use XIRR instead.
The Power of Small Differences: At 10% CAGR, ₹1L becomes ₹6.7L in 20 yrs. At 14%, it becomes ₹13.7L — more than double! Every 1% in CAGR matters enormously over long horizons.
CAGR — FAQ
What is a good CAGR for mutual funds in India?
Nifty 50 has delivered ~11–13% CAGR over 20 years. Mid-cap index: ~14–16%. Small-cap: ~15–18% but with high volatility. Debt funds: 6–8%. PPF/EPF: 7.1–8.25%. A good equity mutual fund targets 12–15% CAGR over a 10+ year horizon.
How is CAGR different from average return?
If an investment gains 50% then loses 33.3%, the average is 8.35% but CAGR is 0% — it’s back to where it started. CAGR is the geometric mean and reflects the actual compound growth. Always use CAGR, never simple averages, for investment comparisons.
What is the Rule of 72?
At X% CAGR, money doubles in approximately 72/X years. At 12%: 72/12 = 6 years. At 6%: 72/6 = 12 years. A quick mental calculation to understand the power of compounding and the urgency of higher returns.
