What CAGR means
CAGR is the rate at which an investment would have grown if it grew at a steady annual rate. It smooths out the bumps. A mutual fund that returned 40% one year and lost 10% the next didn’t actually grow at 15% per year — the CAGR is lower because losses hurt more than equivalent gains help.
The formula: CAGR = (Final Value / Initial Value)^(1/Years) - 1.
Where CAGR is used
Mutual fund returns are almost always quoted as CAGR. A fund’s 5-year return of 14% CAGR means ₹1 lakh grew to ₹1.93 lakh over five years — not that it added 14% to each year’s ending value independently. SEBI mandates CAGR disclosure for all mutual fund returns above one year.
FD returns are not CAGR — they’re simple interest or compounded quarterly. When comparing an FD at 7.5% to an equity fund at 12% CAGR, you’re comparing different things. The compound interest calculator shows you what the FD actually grows to.
CAGR vs absolute return
If you bought a stock at ₹200 and it’s now ₹500 after 7 years, the absolute return is 150%. The CAGR is 13.9%. Which matters more depends on context. For comparing two investments held over different periods, CAGR is the only fair metric.
The doubling time shortcut
The rule of 72: divide 72 by the CAGR to get approximate years to double. At 12% CAGR, money doubles in 6 years. At 18%, in 4 years. The calculator shows exact doubling time — the rule of 72 is a mental math shortcut that works best between 6% and 20%.
Sources
- SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2020/175 — mutual fund performance disclosure requirements (CAGR mandatory for periods above 1 year)
- AMFI: Guidelines on advertisement of mutual fund schemes — standardised return calculation methodology