Reviewed 11 October 2026. CAGR stands for Compound Annual Growth Rate. For one starting amount and one ending amount, it describes the constant yearly growth rate that would connect the two values. It is a summary of past growth, not a promise that an investment earned the same return every year.
Quick answer: CAGR = (ending value ÷ beginning value)1/years − 1. For example, ₹1,00,000 growing to ₹1,61,051 in five years has a 10% CAGR. For a SIP or investment with additional cash flows, use the dates and amounts of those flows to calculate XIRR instead of applying CAGR to total contributions.
How to calculate CAGR, step by step
Collect the beginning value, ending value and elapsed time. Use values measured on a consistent basis, and confirm whether money was added, withdrawn or distributed during the period. A growing portfolio balance can reflect new deposits as well as investment returns.
₹1,61,051 ÷ ₹1,00,000 = 1.61051
1.61051 raised to 1/5 = 1.10
1.10 − 1 = 0.10 = 10%
The absolute gain is ₹61,051, or 61.051% over the entire five years. Dividing that percentage by five gives 12.2102%, which ignores compounding and is not the CAGR. Check the result in the other direction: ₹1,00,000 × 1.105 = ₹1,61,051.
CAGR formula in Excel
Enter the following numbers into a worksheet. Keep the duration in years if you want an annual rate.
| Cell | Input | Value |
|---|---|---|
| B2 | Beginning amount | 100000 |
| B3 | Ending amount | 161051 |
| B4 | Years elapsed | 5 |
| B5 | CAGR formula | =(B3/B2)^(1/B4)-1 |
Format B5 as a percentage: the raw value 0.10 should display as 10.00%. Do not multiply the formula by 100 and then apply percentage formatting, which would display 1,000%. Excel's =RRI(B4,B2,B3) is an alternative for this example. RRI returns a rate per entered period; entering 60 months gives a monthly rate, not an annual CAGR. See Microsoft's RRI documentation.
How to calculate CAGR for months or a falling investment
Convert months to years before annualising: 18 months is 1.5 years. A fall in ending value can produce a negative CAGR. The following examples assume positive beginning and ending amounts with no contributions, withdrawals or distributions between them.
| Beginning value | Ending value | Duration | Absolute return | Annual CAGR |
|---|---|---|---|---|
| ₹1,00,000 | ₹1,61,051 | 5 years | 61.05% | 10.00% |
| ₹1,00,000 | ₹1,20,000 | 18 months | 20.00% | 12.92% |
| ₹1,00,000 | ₹72,900 | 3 years | −27.10% | −10.00% |
| ₹1,00,000 | ₹1,00,000 | 2 years | 0.00% | 0.00% |
For exact dates, record the day-count convention used by your tool. A day-based approximation may use elapsed days divided by 365; a calendar-year convention can differ around leap years. Compare like with like rather than assuming a small decimal difference is an error. Annualising a very short period can exaggerate the apparent long-term rate.
How to calculate CAGR in a mutual fund
For a growth-option NAV comparison with no intervening unit adjustment, divide the ending NAV by the starting NAV, then apply the formula over the same dates. An illustrative NAV rise from ₹20 to ₹32.2102 in five years gives 10% CAGR. This is an arithmetic illustration, not the performance of a named fund.
Your personal return can differ from a fund's published return if your purchase dates, cash flows, plan, option or valuation dates differ. If you received distributions, a simple price or NAV ratio does not capture your total return unless the distribution and reinvestment treatment is accounted for. A fall in NAV after a distribution is not, by itself, the whole investment outcome.
Use matching dates and a comparable benchmark, then review risk and liquidity. Fund NAV performance reflects expenses deducted within the NAV; avoid subtracting the same fund expense ratio a second time from that historical NAV return. Investor-level charges and taxes still need separate treatment. Our expense ratio guide explains the distinction.
How to calculate CAGR for a SIP: why XIRR is different
A SIP contributes money at different dates. The earliest contribution has more time to grow than the latest one. Taking the final value divided by all contributions, then using the time since the first contribution, treats every rupee as if it were invested at the start.
Use XIRR for your dated investor cash flows. Record invested amounts as negative, money received as positive, and the final portfolio valuation as a positive amount on its valuation date. Do not count that terminal valuation again as a separate withdrawal.
| Date | Cash flow | Meaning |
|---|---|---|
| 1 January 2025 | −₹1,00,000 | First investment |
| 1 January 2026 | −₹1,00,000 | Additional investment |
| 1 January 2027 | +₹2,31,000 | Final valuation |
At an assumed 10% annual growth rate, the first ₹1 lakh becomes ₹1,21,000 after two years and the second becomes ₹1,10,000 after one year. Total: ₹2,31,000. The dated cash-flow XIRR is 10%. Applying CAGR to ₹2 lakh and ₹2.31 lakh over two years gives about 7.47%, because it incorrectly places both contributions at the beginning. This is a simplified annual-contribution example; monthly SIPs have the same timing issue.
With these three dates in A2:A4 and flows in B2:B4, use =XIRR(B2:B4,A2:A4) and percentage formatting. Enter real spreadsheet dates and include every relevant flow. Excel XIRR uses a 365-day basis; unusual cash-flow patterns may not produce a unique or convergent answer. See Microsoft's XIRR documentation.
CAGR vs absolute return vs average return vs XIRR
| Measure | What it answers | Important limit |
|---|---|---|
| Absolute return | How much did this value change overall? | Not annualised; deposits are not investment gains. |
| CAGR | What constant annual rate connects two values? | Hides the path; simple form excludes interim cash flows. |
| Arithmetic average | What is the average of period returns? | Does not represent compounded wealth growth. |
| XIRR | What annualised rate fits my dated cash flows? | Depends on flow dates and amounts; does not measure risk. |
For example, ₹100 gaining 25% in year one becomes ₹125. Losing 20% in year two brings it back to ₹100. The arithmetic average is 2.5%, but the two-year CAGR and absolute return are both zero. The percentages apply to different bases.
What CAGR cannot tell you
Two investments can have identical starting values, ending values and CAGR, while one suffers a large decline along the way. If you need to withdraw during that decline, the final CAGR does not describe your experience. Review volatility, drawdowns, access to money and your holding period alongside returns.
CAGR is also not automatically a post-tax or inflation-adjusted rate. If a hypothetical annual return is 10% and inflation is 6%, the real rate before tax is (1.10/1.06)-1, about 3.77%, rather than exactly 4%. Both inputs here are assumptions. Do not treat historical growth as a future offered rate.
Common CAGR calculation mistakes
- Using months as years: convert 18 months to 1.5 years.
- Dividing total return by years: this ignores compounding.
- Ignoring a SIP or withdrawal: use a dated cash-flow measure for investor returns.
- Mixing dates or return definitions: NAV, price, total return and personal return can differ.
- Entering zero starting value: the ratio is undefined. This guide's formula uses positive values and a positive duration.
- Calling a high CAGR safe: return alone does not establish safety or suitability.
Frequently asked questions
What is CAGR's full form?
Compound Annual Growth Rate. It is an annualised summary connecting a beginning value to an ending value over a stated time.
Can CAGR be negative?
Yes. ₹1 lakh falling to ₹72,900 over three years, without interim cash flows, has a −10% CAGR.
Is 12% CAGR guaranteed in a mutual fund?
No. A past rate or calculator assumption is not a guaranteed future return. Avoid selecting a product from its return number alone.
Why does my SIP app show XIRR instead of CAGR?
XIRR accounts for your dated investments and receipts. Check that the app and your worksheet use the same flows and final valuation date.
Does CAGR show what I will receive after tax?
Only if the values used explicitly reflect the relevant tax treatment. A published pre-tax performance number does not automatically equal your post-tax outcome.
Sources and related tools
Spreadsheet function references checked 11 October 2026. All rupee examples above are independently calculated illustrations; they are not quoted fund returns.
- Microsoft: RRI function
- Microsoft: XIRR function
- AMFI: expenses deducted within NAV
- AMFI: mutual fund investment risks
Explore assumptions with our lump sum calculator and SIP calculator. A future-value calculator models an assumed rate; it does not verify your actual historical investor return.
Educational information: The Invest Mate does not provide personalised financial advice. Examples are illustrations, not promised returns. Check product documents and your own cash-flow records before drawing conclusions.
