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Compound Annual Growth Rate (CAGR) is a measure of the average yearly growth of your investments over a certain time period. It tells you the average rate of return you have earned on your investments every year.
Calculate the expected returns for your investments
years
What you get:
Total Invested Interest earned
Total invested Gains
Total invested Interest earned
Summary:
This graph shows the YOY interest earned on your investment based on the maturity value and duration of the investment.
This also displays the how your investments are performing every year. However, it does not capture investment related risks.
Summary:
This graph shows the breakup of total amount invested and the interest earned. The absolute rate of return is the rate of change of your investment from the beginning value to the maturity value.
What you get:
Select return type
- Absolute returns
- Annual returns (CAGR)
| Total Invested | ₹20 Lacs |
| Gains | ₹30 Lacs |
| CAGR Returns | 20.11 % p.a.150 % |
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All you need to know about CAGR calculator
What is CAGR
Compound Annual Growth Rate (CAGR) is a measure of the average yearly growth of your investments over a certain time period. It tells you the average rate of return you have earned on your investments every year. CAGR is very useful for investors because it is an accurate measure of investment growth (or fall) over time.
CAGR vs Absolute returns
Many people look at their investment returns in absolute terms. Absolute returns tell you how much your investment has earned over the entire duration. Let us take a hypothetical example. Imagine that you have invested ₹20,000 in a mutual fund in 2015. The value of the investment is ₹35,000 in 2020.
In absolute terms, you have earned a 75% return on your investment over a five-year period. While this sounds very good, it does not give you the full picture. In other words, you do not know the average rate of return you have earned on your investment every year.
As an investor, it is important to know how well your investments have performed on an average year on year. CAGR can be very helpful in such a situation.
How to Calculate CAGR - The CAGR Formula
Now that you have a basic idea about Compound Annual Growth Rate and its importance, let’s delve deeper and understand how to calculate CAGR.
We will start with the CAGR formula. The Compound Annual Growth Rate or CAGR formula for calculating investments is:
CAGR = (Ending balance/beginning balance)1/n - 1
Here,
- Ending balance is the value of the investment at the end of the investment period
- Beginning balance is the value of the investment at the beginning of the investment period
- N is the number of years you have invested
How to calculate CAGR using this formula?
Let's understand this with an example.
CAGR = (35000/20000)1/5 - 1
OR
CAGR = 11.84%
This means, your investment in the mutual fund has given you an average return of 11.84% every year.
How To Use The ET Money CAGR Calculator
The ET Money CAGR calculator is an easy to use online calculator featuring a simple and elegant design. This returns calculator can accurately and instantly provide two key types of investment returns - Absolute Returns and Compound Annual Growth Rate (CAGR) based on inputs provided by the user.
To use the ET Money Returns calculator, you need to feed 3 key pieces of information into the calculator:
- Total Investment - This is the total amount that you have invested
- Final Maturity Value - This is the value of the investment at maturity
- Duration of Investment - This is the total time that you stayed invested (in years)
Once you have provided the above information, you can choose to either check the Absolute Returns or the Annual Returns (CAGR) of your investment and click on the “Calculate” button.
The results provided by the ET Money CAGR calculator based on the above information include the total gains you have made from the investment along with the CAGR or Absolute Returns (in percentage). Additionally, you will also see a graphical representation of how your investment has grown over time along with a short list of Mutual Funds that have the potential to provide similar growth of your investment.
Benefits of Online CAGR Calculator
There are multiple benefits of using CAGR calculator. Let’s look at them one by one and understand how you can use the online CAGR calculator to make informed investment decisions.
To evaluate growth of an investment or business over time - Unlike in absolute returns, CAGR calculation takes into account the element of time. So CAGR works as a more precise indicator of growth over time. Whether you have your own business or you have invested in some financial product, you can look at CAGR to find out how your money has grown every year over a certain period.
To compare performance of multiple investment products - CAGR formula can be used to compare multiple investment products more accurately than absolute returns. Thus, CAGR calculator as a tool can come handy for investment comparison.
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Frequently asked questions
What is CAGR?
CAGR is an acronym for Compound Annual Growth Rate. CAGR represents investment growth. It is a measure of how well your investments perform on an average each and every year. You can find out the average annual performance of your investments easily by using the ET Money online CAGR calculator.
What is a good CAGR percentage?
There is no straightforward answer. CAGR is typically used to measure returns from an investment. So you need to consider multiple factors like risk, an investment’s potential, historic returns, etc. For instance, in the case of equities, 12% can be a good CAGR. But in fixed income products like FDs or debt funds, 7-8% maybe a good CAGR, as these are less risky than equities and inflation has risen at around 6% every year in the last decade.
What does 10% CAGR mean?
CAGR tells you the average rate at which an investment has grown over a specified period.
10% CAGR means the 10% interest you earn every year is first added to your principal investment. And then, on the total amount, you again get 10%return.
Here’s an example. Say you invest Rs 1 lakh. At 10% CAGR, the amount will grow to Rs 1.1 lakh in the first year. In the second year, it will be Rs. 1.21 lakh and so on.
Why is CAGR important?
CAGR formula takes into account the impact of time and compounding. So CAGR works as a more precise indicator of growth over time. As an investor, you can decide how much to invest now to achieve a specific investment goal over time. You can also use CAGR to compare multiple investment products and how they have performed over a period of time.
What is CAGR return?
CAGR or Compound Annual Growth Rate return shows the average annual growth of an investment with compounding. This is one of the most accurate methods of calculating the rise or fall of your investment returns over time.
Is the CAGR calculator free to use?
Yes. The ET Money online CAGR calculator is absolutely free to use. You can use it as many times as you want without any restrictions. You just need to input the necessary values and the calculator generates the results immediately.
Does the CAGR calculator reflect investment risks?
No. The CAGR calculator does not reflect investment risk.
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