CAGR Calculator

Unlock Your Investment Growth: Introducing the PaisaForever CAGR Calculator

Knowing how your investments have performed over time is critical to making informed financial decisions. While simple returns can be deceiving, the Compound Annual Growth Rate (CAGR), for example, provides an unambiguous annualized view of growth, and now, we are pleased to announce the launch of our new CAGR Calculator at PaisaForever to help you track your financial progress with ease! 

What is CAGR and Why is it Important? 

CAGR is the hypothetical constant annual rate at which your investment would have grown if it compounded at the same annualized rate over a specified time period. Let’s be clear, CAGR is not a simple average return; CAGR accounts for volatility in returns to provide a more accurate picture of investment performance over multiple years. 

For instance, let’s say that you invested ₹10,000 which grew to ₹20,000 after 5 years. From a simple calculation, you might think you received a simple return of 100%. However, CAGR indicates the average annualized rate at which that change has occurred. So the CAGR in this example would be 14.87%.  With the CAGR metric you can fairly compare different investments with different investment horizons such as mutual funds, stocks, or your entire portfolio to assess where true growth potential might lie.

CAGR vs XIRR: What is the Difference?

CAGR is great for a single investment amount in a lump sum, but many of us invest using SIPs (Systematic Investment Plans) or have funds that grow with many investments and withdrawals or both. So, the question I hope you have is what to use when investing on-going or in multiple cash flows, the answer is XIRR (Extended Internal Rate of Return). 

XIRR provides the annualized return on investment accounting for your cash flows (in the case of investment accounts those inflows [investments] and outflows [withdrawals]) happening at various times with various amounts, plus it gives actual returns based on the real dates and amounts of each transaction. For the typical Indian investor with SIP contributions in mutual funds, XIRR produces far more accurate results of an investment’s performance than CAGR can offer. 

How Our CAGR Calculator Can Help You

Our PaisaForever CAGR Calculator allows you to calculate CAGR in seconds. Simply enter your investment value, the final value, and the years (duration of the investment), and the CAGR calculator does the rest for you. No formulas, no standing by the calculator doing math by hand, you get it all with quick, reliable processes. Use our CAGR calculator to: 

• Evaluate past performance: understand how your value of investment has increased and how much; 
• Evaluate investment options: compare returns of investment returns of how much was invested in total to decide to take the risk;
• Established return target returns projections; established performance rates of return into the future, based on events completed in the past.

Frequently Asked Questions (FAQs)

1. What is CAGR?

CAGR stands for Compound Annual Growth Rate. In return measurements, it is the annual average rate of growth of an investment over a period, assuming you reinvest the profits at the end of every given year. Simply put, CAGR gives you a smoothed-out rate of return because it doesn’t account for volatility.

2. What is the significance of CAGR for investors?

CAGR, for an investor, means they can compare the performance between two mutual funds, stocks, fixed deposits, and real estate, and observe the effect of different time periods. It allows you to measure true growth against different investments. It provides investment performance and true growth comparisons to make better financial planning and decisions.

3. What is the difference between CAGR and a simple annual return?

A simple annual return only tells you the return for one year. CAGR, however, considers the fact that compounding takes place for multiple years, producing an investment average growth rate that is annualized across the total investment period, that smooths out year-to-year variances.

4. When should I use CAGR?

Use CAGR if you wish to calculate the annualized growth rate of a single lump-sum investment over a period greater than that of one year. It is best to use CAGR when comparing the performance of two different investments that started with one common initial investment.

5. What does XIRR mean?

XIRR is short for Extended Internal Rate of Return. It is a complex return measure that calculates annualized return on investment with multiple cash flows (investments and withdrawals) at irregular frequency, typical for investments in SIPs (systematic investment plans) or staggered format investment.

6. Why is XIRR preferred for SIP investments in India in terms of returns?

Almost all Indian investors invest in mutual funds vía SIPs, which means they will have multiple investments, periodically. XIRR will accurately account for dates and amounts of all these separate cash flows to present a true and fair view on performance of a whole portfolio, compared to CAGR which is based on single initial investments only.

7. Does CAGR consider inflation?

CAGR does not explicitly consider inflation. The number generated from the CAGR calculation is a nominal return. To understand your real return (post inflation) you would need to deduct from the CAGR your average inflation rate during the investment period.

8. Can CAGR be negative?

Yes, CAGR can be negative if your investment’s final value is less than your initial investment amount after the specified period. A negative CAGR indicates a loss on your investment during the specified calculated period.

Disclaimer: Please note that the results from this CAGR calculator are indicative and based on your inputs. They do not guarantee future performance and should not be considered as financial advice. Always consult with a qualified financial advisor before making investment decisions.