CAGR & Stock Return Calculator

What is CAGR (Compound Annual Growth Rate)?

The Compound Annual Growth Rate (CAGR) is the growth rate of an investment over a particular time period, assuming the profits are reinvested at the end of each period.

In reality, the market hardly grows at a consistent rate – one year the Nifty 50 could clock in +24% returns, while the next year it plummets to -8%, and the following year it only grows by +3%. Essentially, CAGR smoothen out the noise and asks the question:

The Importance of CAGR Over Simple Percentage Gain

Let’s say you made a ₹1,00,000 investment in a growth stock in 2019, and it is now worth ₹2,00,000 in 2024.

Your Absolute Return is 100%, but it is quite possible that your investment did not grow at a consistent 20% CAGR every year since 2019. In reality, your investment grew at a compounded rate of 14.87% over 5 years.

Being aware of the CAGR is important because it lets you compare your investment to others. For instance, knowing that your stock’s CAGR is 14.87% allows you to compare it to a fixed deposit (say 7%), sovereign gold bonds (~10-11%), or even a Nifty index fund (~12-13%).

CAGR Formula

The Compound Annual Growth Rate formula is:

Where:

Final Value (FV): The value of the investment at the end of the holding period (Current Value or Maturity Value)

Initial Value (PV): The value of the investment at the start (Purchase Price or Initial Investment)

n: The total number of years for which the investment was made (Can be in fractions, e.g., 3.5 years)

To express this growth rate in percentage terms we multiply the result by 100:

CAGR Calculation Example

Let’s say you made the following investment:

• •Initial Investment (PV): ₹2,50,000 (January 2020)

• •Final Portfolio Value (FV): ₹6,20,000 (January 2025)

• •Investment Horizon (n): 5 Years

Using the CAGR formula mentioned above:

Step 1: Divide the Final Value by the Initial Value

This means that your investment grew 2.48 times over the 5-year period.

Step 2: Raise the result to the power of $(1 / n)$

Since n = 5, the exponent is 1 / 5 = 0.20.

Step 3: Subtract 1 and convert to percentage:

Your portfolio grew at a 19.91% CAGR over 5 years

How to Use Valuenomy’s CAGR Calculator?

Our CAGR calculator online makes calculating the compound growth rate of an investment much easier. Instead of performing the calculation manually, enter your investment details and let the calculator do the math.

The steps to use our CAGR calculator are:

1. Enter Initial Investment: Enter the value of the investment at the start.

2. Enter Final Value: Enter the value of the investment at the end.

3. Enter Investment Period: Enter the length of time of the investment.

4. View Results: The calculator displays the following results:

CAGR (%)

Absolute Return (%)

Total Profit / Wealth Generated (₹)

CAGR vs Absolute Return vs XIRR: What’s the Difference?

One of the most common mistakes an investor can make is using the wrong metric to evaluate their investment. Here is a summary of the most common performance metrics and their applications:

| Metric | Best Used For | Handles Cash Inflows/Outflows? | Considers Time Factor? |

| Absolute Return | Short Term (<1 Year) | No | No |

| CAGR | Point to Point Lump Sum (> 1 Year) | No (Single Start & End) | Yes (Annualized) |

| XIRR (Extended IRR) | SIPs, Mutual Funds with Periodic Deposits/Withdrawals | Yes (Multiple Cash Flows) | Yes (Exact Dates of Transactions) |

When Should You NOT Use CAGR?

For Systematic Investment Plans (SIPs)

If you have made monthly investments of ₹10,000 use the XIRR function instead of the CAGR. Each installment bears a different compounding period – the first installment will compound for a full 5 years, whereas the last installment will only compound for 1 month.

For Investments with a Short Holding Period (< 12 Months)

If you are measuring the returns of a stock or mutual fund that you held between 3 – 6 months use the Absolute Return function instead of the CAGR. Applying the CAGR function to investments with a short holding period will exaggerate the returns.

What is a “Good” CAGR in the Indian Market?

A “good” CAGR depends on the types of investments made and opportunity costs. Here are the types of investments available in the Indian market and their expected CAGR:

| Type of Investment | Expected CAGR |

| Fixed Deposits (FD) | 6.5% – 7.5% |

| Gold (Sovereign Gold Bonds / Physical) | 9% – 11% |

| Large-Cap Equities / Nifty 50 Index | 12% – 14% |

| Active Mutual Funds / Mid & Small Caps | 15% – 18%+ |

It is possible to generate a 15%+ CAGR consistently over a long period (15 – 20 years) of disciplined investing. The Rule of 72 indicates that at this rate, your investment will double every 4.8 years.

Limitations of CAGR Every Investor Must Know

While CAGR is undoubtedly a vital metric, it has several limitations that every investor should be aware of:

Hides Volatility and Drawdowns

CAGR assumes a steady growth rate for the investment, but it rarely reflects the true performance of the investment. An investment that grew at the rate of +50% -> -30% -> +40% could have an impressive CAGR, but it hides the fact that it was a rollercoaster journey.

Endpoint Sensitivity

CAGR is highly sensitive to the start and end dates of the calculation. If you begin your calculation at the bottom of a bear market and end it at the peak of a bull market, you could get an exaggerated CAGR. Always try to measure CAGR over a complete market cycle (both bull and bear).

Does not Account for Risk

Two different mutual funds can report the same CAGR, but one could be considerably riskier than the other. Always evaluate your investment’s risk-reward profile using metrics such as the Sharpe Ratio or Standard Deviation.

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