CAGR (Compound Annual Growth Rate) is the single most important metric for comparing investment returns. Unlike absolute returns that can mislead (50% over 5 years sounds good, but that's only 8.4% CAGR), CAGR tells you the steady annual rate at which an investment has grown — apples to apples across all time periods and asset classes.
CAGR Formula
CAGR = (Final Value ÷ Initial Value)^(1 ÷ Years) − 1
Example: Investment grew from ₹1,00,000 to ₹2,00,000 in 5 years. CAGR = (2,00,000÷1,00,000)^(1/5) − 1 = 2^0.2 − 1 = 1.1487 − 1 = 14.87%
CAGR Benchmarks for Indian Assets (Historical)
| Asset Class | 10-Year CAGR | 20-Year CAGR |
|---|---|---|
| Sensex (BSE) | ~12% | ~14% |
| Nifty 50 | ~11% | ~13% |
| Large Cap Mutual Funds | 12–14% | 13–15% |
| Mid Cap Mutual Funds | 16–20% | 17–22% |
| Gold | ~10% | ~12% |
| Real Estate (metro) | ~8% | ~10% |
| PPF | 7.1% | 7.5% avg |
| Bank FD | 6.5–7.5% | 7–8% avg |
CAGR vs Absolute Return vs XIRR
- Absolute Return: Simple % gain. (Final−Initial)/Initial. Good for short periods but misleading over long periods.
- CAGR: Annualized return assuming compounding. Best for lump sum investments held for a fixed period.
- XIRR: Internal rate of return for irregular cash flows (like SIP). More accurate than CAGR for monthly investments.
Rule of 72 — Quick Mental Math
Divide 72 by the CAGR to find how many years it takes to double your money: At 12% CAGR → 72÷12 = 6 years to double. At 7.1% PPF → 72÷7.1 = ~10 years. At 20% mid-cap → 72÷20 = 3.6 years.
Use our CAGR Calculator to instantly find the CAGR for any investment by entering start value, end value, and years.