What CAGR actually measures
CAGR — compound annual growth rate — is the single constant annual rate that would take your starting value to your ending value over the period. It is a smoothing device: it deliberately discards the path and reports only the two endpoints and the time between them.
That makes it the right tool for exactly one shape of investment: one amount in, one amount out, nothing in between. A stock bought once and sold once. A fixed deposit. A property. For those, CAGR is exact and comparable across holdings of different lengths, which is precisely why it is the standard way to quote long-run returns.
How to use this calculator
- Enter the initial valueWhat you paid, including brokerage if you want the figure net of entry costs.
- Enter the final valueThe current market value, or the exit proceeds. Add any dividends received if you want a total-return CAGR rather than a price-only one.
- Enter the period in yearsFractions are fine. For an exact number, divide the number of days held by 365.
When CAGR misleads
Any cash flow in the middle breaks it
This is the big one, and it affects almost every real retail portfolio. If you invested ₹1 lakh three years ago, added ₹50,000 last year and now hold ₹2 lakh, there is no single start and end value to feed into CAGR — the later money was only invested for a year and should not be credited with three years of growth. Feeding total contributions in as the "initial value" understates the return; using only the first investment overstates it wildly. The correct tool is XIRR, which weights every rupee by how long it was actually invested. Use the XIRR calculator, and see the XIRR glossary entry for the definition.
It hides the path completely
Two portfolios can post the same CAGR and be entirely different investments. Both of these start at ₹1,00,000 and finish at ₹2,00,000 after six years, so both report a CAGR of 12.25%.
| Portfolio A | Portfolio B | |
|---|---|---|
| Path | Roughly 12% every year | Down 50% in year one, then recovers and quadruples |
| Worst point | Never below the starting value | ₹50,000 |
| Maximum drawdown | Small | 50% |
| Value after six years | ₹2,00,000 | ₹2,00,000 |
| CAGR | 12.25% | 12.25% |
The CAGR is identical and the experience is not remotely comparable. Most investors would have sold Portfolio B at the bottom, which is why return alone is an incomplete description of an investment. Pair it with maximum drawdown and volatility, or with the Sharpe ratio if you want return and risk in one number.
Short periods annualise noise
A stock up 8% in one month has a three-month-equivalent CAGR that looks spectacular and means nothing — annualising a short window simply projects a random fluctuation across a whole year. Below about a year, quote the absolute return instead and say over what period.
Get CAGR, XIRR and risk on your real holdings
AIVITTA computes annualised returns from your actual broker portfolio, benchmarks them against the Nifty and shows the risk you took to get there.
CAGR, XIRR and absolute return
| Absolute return | CAGR | XIRR | |
|---|---|---|---|
| Accounts for time | No | Yes | Yes |
| Handles multiple investments | No | No | Yes |
| Accounts for exact dates | No | No | Yes |
| Right for one lump sum held to exit | Only if you state the period | Yes | Yes — same answer |
| Right for SIPs or irregular top-ups | No | No | Yes |
For a single investment with no top-ups, CAGR and XIRR return the same rate — XIRR simply generalises CAGR to arbitrary dated cash flows. So the rule is easy: one investment, one exit, use CAGR. Anything else, use XIRR.
What counts as a good CAGR in India
Only relative to something. A CAGR is only informative next to a benchmark over the identical window and next to the risk taken to earn it — a portfolio compounding at 14% with far smaller drawdowns than the index is a better result than one at 16% that halved along the way. Compare against the Nifty 50 or Nifty 500 over exactly your holding period, not against a number you were once quoted. How to analyze a stock portfolio walks through doing this properly, and understanding portfolio risk covers the risk half.