Compound Annual Growth Rate | Tax One Advisory

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Find the Compound Annual Growth Rate of your investment

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Investment Benchmarks - India

Typical CAGR for common Indian investment avenues

Investment10-Year CAGR15-Year CAGR20-Year CAGR
Nifty 5012.2%13.8%14.5%
Sensex11.8%13.2%14.0%
Gold8.5%10.2%11.0%
PPF7.6%8.0%8.2%
Fixed Deposit6.5%7.0%7.5%
Real Estate7.0%8.5%9.5%
Inflation (CPI)5.5%5.8%6.0%

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What is CAGR and Why It Matters

CAGR (Compound Annual Growth Rate) represents the annualized average rate of return for an investment over a specified period longer than one year. Unlike simple returns, CAGR smooths out volatility to show you the consistent annual growth rate that would take an investment from its initial value to its final value.

CAGR vs Absolute Returns vs XIRR

  • Absolute Return = (Final Value - Initial Value) / Initial Value x 100. Simple, but ignores the time dimension -- a 100% return over 2 years is very different from 100% over 10 years.
  • CAGR = (Final / Initial)^(1/n) - 1. Annualizes the return so you can compare investments with different time horizons fairly.
  • XIRR is used when there are multiple cash flows at irregular intervals (e.g., SIPs). CAGR works only for single lump-sum investments.

Limitations of CAGR

  • Hides volatility: CAGR does not reflect the ups and downs an investment experienced during the period. An investment could have had wild swings yet show a steady CAGR.
  • Point-to-point measure: The result changes depending on the start and end dates chosen. Selecting a market peak or trough can skew the picture.
  • No cash-flow handling: CAGR assumes a single investment at the start. For SIPs or partial withdrawals, use XIRR instead.

Rule of 72

A quick mental shortcut: divide 72 by the CAGR to estimate how many years it takes to double your money. For example, at 12% CAGR, your investment doubles in approximately 72 / 12 = 6 years.

When to Use CAGR vs Other Metrics

  • Use CAGR when comparing lump-sum investments over different time periods.
  • Use XIRR when you have multiple investments or withdrawals at different dates (SIP, SWP).
  • Use Absolute Returns for investments held less than one year.
  • Use Rolling Returns to assess consistency of performance across multiple time windows.