The CAGR calculator is a financial tool that helps investors calculate the annual growth rate of their investments over a specified period. It represents the mean annual growth rate of an investment assuming it grows at a steady rate. Unlike simple growth rate calculations, CAGR takes into account the effect of compounding, which makes it a more accurate measure to track investment performance over time.
CAGR is an acronym for Compounded Annual Growth Rate, commonly used in determining how well a business is performing in the fiercely competitive market. CAGR measures your average annual growth over several years, assuming that the returns earned on the principal are continuously reinvested and are compounded till the time of redemption.
What is a CAGR Calculator?
The Compound Annual Growth Rate (CAGR) calculator is a utility tool to calculate the compound annual growth rate of your investment over time. You will have to enter the value of the initial investment, the expected final value of the investment, and the number of years to calculate the CAGR.
The CAGR calculator has a formula box where you select the beginning and the ending value of the investment. You must also select the number of years of the investment. The CAGR calculator will show you the annual rate of growth of your investment. You can use CAGR to compare the return on investment against a benchmark.
How can a CAGR Calculator Help You?
If you own a business, the CAGR can indicate a lot of factors that are otherwise overlooked. Unlike the concept of ‘absolute returns’, growth based on CAGR takes into account the element of time. It is thus a better indicator of growth over a period.
Note that the CAGR is an indicative figure and not a real one. In its most basic sense, it indicates the exact rate of an investment’s growth, considering that it grows at the same rate and the returns are reinvested. Taking note of CAGR is also a huge bonus when you are considering differential investment options.
How to Use the CAGR Calculator
- Enter Beginning Value: Input the initial investment amount.
- Enter Ending Value: Provide the final value of your investment.
- Enter Investment Duration: Specify the number of years.
- Click “Calculate”: Instantly view the CAGR percentage.
Key Features
- Instant Results: Get CAGR in real time as you adjust inputs.
- Clear Breakdowns: See the formula and intermediate values.
- Export Options: Download detailed reports in PDF or CSV.
- Mobile-Ready Interface: Access on any device.
- Related Tools: For SIP-based growth analysis, try our Step-Up SIP Calculator.
What is the Formula of the CAGR Calculator?
Here are the key steps to the CAGR formula, and once you understand these steps, you will also understand the CAGR formula much better.
- The first step is to divide the investment value at the end of the period by the initial value of the investment, and get the wealth creation ratio
- Raise the wealth creation ratio to the power of one divided by the tenure of the investment in years.
- Subtract one from the answer, and you will get the CAGR returns in decimals. You can multiply it by 100 to get the CAGR returns in percentage terms.
In algebraic terms, the CAGR formula can be written as under.
CAGR = (FV / PV) ^ (1 / n) – 1
FV = Future Value of the investment
PV = Present Value of the investment
n = Number of years
To understand the formula better, let us look at a hypothetical situation. Consider that you invested Rs. 5.20 lakhs and that has grown to Rs. 9.85 lakhs after 5 years. Using the formula, the CAGR of this mutual fund investment will be:
CAGR= (9.85 lakhs / 5.20 lakhs) ^ (1/5) – 1 = 13.63%
Of course, applying the formula in detail can be elaborate and time-consuming, and the best you can do is to just use an advanced CAGR calculator on the website and get the answer quickly.
A CAGR calculator helps you determine the true returns on investment yearly. In this sense, using our CAGR calculator online saves you time and other resources as it is completely free.
Benefits of Using the CAGR Calculator Online
- User-Friendly Interface: Easy to use for investors of all levels.
- Quick Calculations: Delivers instant results for timely decision-making.
- Customizable Inputs: Allows for adjustments to explore various investment scenarios.
- Accurate Growth Measurement: Provides reliable CAGR estimates for accurate performance assessment.
- Secure and Reliable: Trusted platform for all your financial calculation needs.
CAGR Calculator FAQs
What is CAGR, and how is it calculated?
CAGR, or Compound Annual Growth Rate, gives you the investment’s annual growth rate over some period of time. You may consider CAGR as a percentage-based metric, which helps you determine the annual rate at which your investment grows over a period of more than one year. You may use CAGR to determine the exact percentage of returns from your investments each year, across the investment tenure.
What is the CAGR return?
It is the average return earned on the investments made in a year.
Why does CAGR matter so much in finance?
CAGR is useful as it helps the investor to decide how much to invest now to achieve a specific investment goal over time. The CAGR is very useful as it offers more accurate results by using a standard rate of compounding. More importantly, it offers a key benchmark to compare stocks or mutual funds over longer periods of time.
What does the CAGR calculator help us understand?
A CAGR calculator helps you understand the average annual growth rate of an investment over a period, smoothing out volatility. It’s great for comparing different investment options, evaluating past performance against benchmarks, and assessing if your long-term financial goals are on track.
Is CAGR the actual annual return?
CAGR represents a smoothed annual rate of return and may differ from year-to-year actual performance.
Can you use our CAGR Calculator to calculate the return from mutual funds?
Use our CAGR Calculator to check the annual growth rate of your mutual fund investments. You can compare the performance of the mutual funds with their peers or even a benchmark. You get an idea of whether you must invest in the mutual fund to get the return you desire.
