CAGR Calculator
Calculate your CAGR Calculator.
How does one calculate the rate of growth of an investment over a long period?
There’s a straightforward metric called the CAGR or Compounded Annual Growth Rate, which expresses the effect of compounding while calculating the growth rate of your investments.
CAGR indicates the compounded returns you earn on an annual basis irrespective of the annual performance of your investment.
Most likely, your investment does not grow at the same rate every year. At times it rises, at times it falls, perhaps even generates negative returns. CAGR lets you know how much your investment grew over a period of several years.
Illustration of a CAGR calculator
Let us say, you decide to invest ₹2,00,000 in stocks and after five years you make ₹450,000.
Now, you want to calculate the average annual growth rate of your investment.
The CAGR formula is:
CAGR={(End value/ begin value)^(1/ no. of yrs.)}-1
CAGR = (450,000)/(2,00,000)^(⅕)-1
In the above example, the compound growth rate CAGR is 17.61%.
While absolute returns would be {(450,000-2,00,000)/(2,00,000)}*100 = 125%
Unlike absolute returns tells you how much your investment has earned over the entire duration, the CAGR tells you how your investment returns have performed year on year.
Frequently Asked Questions
What is a CAGR calculator?
The CAGR calculator does the math for you by providing you instant output to help you make better choices with your investments.
How to use CAGR calculator?
Enter your initial investment amount in rupees. Then enter the number of years you would like to stay invested. As a final step, enter your expected or assured value of investment at the end of the tenure in rupees.
What are the advantages of the CAGR calculator?
You could do multiple iterations, free of charge, for better decision making with regard to your investment. The online calculator generates the output in a few seconds, saving your precious time. As an investor, you could compare and assess the returns of your own portfolio using a CAGR calculator. You can also compare CAGR returns of your stock or portfolio with the benchmark returns. Most importantly, you can compare your CAGR returns with your cost of capital to assess the risk-reward profile of your investments.
What are the limitations of the CAGR calculator?
The CAGR formula does not take into account the investment risk or the uncertainty related to returns on your investment. The CAGR formula implies that the interim cash flows between the start of the investment and its maturity are reinvested as the CAGR formula measures the return rate on the basis of the portfolio’s initial and final balance.
Is there any benchmark or threshold?
No, there is no standard benchmark CAGR. In fact, your CAGR returns can be compared to benchmark returns, which could be your risk-free rate of return and or index return or some peer set. Your CAGR calculator will let you know if the CAGR returns of your portfolio are more than the cost of funds and the risk premium.
What are the benefits of calculating the CAGR?
In addition to telling you whether your investment is earning more than the cost of funds, the CAGR calculator also tells you the rate at which your wealth is compounding.
What is the difference between CAGR & annual average growth return?
The CAGR calculator is based on the concept of compound interest to calculate returns. While the annual average growth is based on a simple interest concept.
While CAGR is a geometric average that represents the rate of return on an investment as if it had compounded at a steady rate each year. On the other hand, the annual average is the arithmetic average.
Is the CAGR calculator free for use?
Yes, it is free of charge for any number of iterations you want to make.
Does CAGR factor future risk?
No, the CAGR formula does not account for risk. As an investor you are required to compare your CAGR return to the benchmark return to decide if it is enough to cover your cost of capital.
For example, if a stock has a CAGR of 25% and your cost of capital including the risk premium is 18%, it can be considered a good idea to invest in the stock.
Can we calculate the CAGR for negative returns?
No, mathematically, it is not possible as the CAGR formula takes the square root of the number.
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Disclaimer:
This calculator is meant to be used for indicative purposes only. It is designed to assist you in determining the appropriate amount of prospective investments. This calculator alone is not sufficient and shouldn’t be used for the development or implementation of any investment strategy. Upstox does not take the responsibility/liability nor does it undertake the authenticity of the figures calculated therein. Upstox makes no warranty about the accuracy of the calculators/reckoners. The examples do not claim to represent the performance of any security or investments. In view of the individual nature of tax consequences, each investor is advised to consult his/her own professional tax advisor before making any investment decisions on the basis of the results provided through the use of this calculator.