What Is CAGR and How to Calculate It: Formula, Examples, Excel Method, Limits and CAGR vs XIRR
Learn what CAGR is, the formula, step-by-step worked examples for investments and business growth, how to calculate in Excel, why CAGR can mislead, and when to use XIRR or rolling returns instead.
CAGR stands for Compound Annual Growth Rate. It tells you the constant yearly rate at which an investment would have grown from its starting value to its ending value, assuming the growth compounds. It is the most common way to compare mutual funds, stocks, revenue and savings over different periods.
The formula
CAGR = (Ending value ÷ Beginning value) ^ (1 ÷ number of years) − 1
Express the result as a percentage. Use the CAGR calculator to check your work.
Worked example 1: a single investment
You invested ₹1,00,000 and it became ₹2,50,000 in 7 years.
- Divide: 2,50,000 ÷ 1,00,000 = 2.5
- Raise to the power of 1/7: 2.5^(0.1429) ≈ 1.1399
- Subtract 1: ≈ 13.99% per year
Worked example 2: a business
A company's revenue grew from ₹40 lakh to ₹90 lakh over 5 years. CAGR = (90/40)^(1/5) − 1 = 17.61% a year. This smooths out the ups and downs of individual years so that you can compare with competitors.
CAGR in Excel and Google Sheets
| Method | Formula |
|---|---|
| Direct formula | =(End/Start)^(1/Years)-1 |
| RRI function | =RRI(Years, Start, End) |
| Between two dates | =(End/Start)^(365/(EndDate-StartDate))-1 |
Format the cell as a percentage. Check for the units: years must be in years, not months. For example, 30 months is 2.5 years.
Why CAGR is useful
- Compares investments with different durations.
- Smooths volatility into one number.
- Works for revenue, users, population, prices and savings.
Limits you must know
- It hides the journey. A fund that doubled in year one and was flat for four years can have the same CAGR as one that grew steadily. The risk differs hugely.
- It assumes a single lump sum. If you invest monthly through SIPs, CAGR from first to last value is wrong. Use XIRR instead.
- It is sensitive to start and end dates. Pick a market peak or trough, and results change.
- It is not a forecast. Past CAGR does not promise the same future return.
- It ignores tax, fees and inflation. Compare real returns with the inflation calculator.
CAGR vs absolute return vs XIRR
| Measure | Use |
|---|---|
| Absolute return | Total percentage gain regardless of time. 150% over 7 years sounds large until you annualise it |
| CAGR | Annualised return for one lump sum from start to end |
| XIRR | Annualised return when cash flows occur on different dates, such as SIPs, withdrawals or dividends |
| Rolling returns | Average of CAGR across many start dates, which shows consistency |
Reading fund factsheets
Mutual fund factsheets in India show trailing returns for 1, 3, 5 and 10 years. Returns under a year are absolute, and longer ones are CAGR. Compare a fund with its benchmark and category peers over the same period, and look at rolling returns, not just one point-to-point number. Direct plans show higher returns than regular plans because of lower costs. See direct vs regular.
Using CAGR to set goals
You can reverse the formula. To turn ₹5 lakh into ₹10 lakh in 6 years, you need (2)^(1/6) − 1 = 12.25% a year. Test whether that is realistic given the asset. Use the future value calculator and the SIP guide to plan contributions.
Rule of 72
A quick mental check: divide 72 by the CAGR to estimate years to double. At 12%, money doubles in about 6 years. At 8%, about 9 years.
Common mistakes
- Using months as years.
- Applying CAGR to SIPs.
- Comparing returns of different periods.
- Ignoring dividends and costs.
- Forgetting that negative CAGR cannot be computed when the ending value is zero or negative.
Related reading: time value of money and compound interest.
Practice problems
- ₹50,000 grows to ₹80,000 in 4 years: (80/50)^(1/4) − 1 = about 12.5% a year.
- A stock falls from ₹500 to ₹320 over 3 years: (320/500)^(1/3) − 1 = about −13.9% a year. Negative CAGR is valid as long as the end value is positive.
- Your website traffic grows from 8,000 to 26,000 monthly visits in 18 months: 1.5 years, so (26/8)^(1/1.5) − 1 = about 118% a year.
Work through each by hand once, then check them with the calculator. Doing this a few times builds the intuition that makes you suspicious of impressive-sounding return claims in advertisements.
How to read advertised returns
When a scheme claims returns of 'up to 15%', ask three questions: over what period, from which start date, and is it CAGR or absolute? A fund that shows 40% for one year in a rising market tells you very little about the next decade. Ask for rolling returns and for the worst period, not only the best.
Frequently asked questions
What is CAGR?
The constant annual rate at which an investment would grow from its start to end value.
What is the CAGR formula?
(Ending value ÷ Beginning value)^(1/years) − 1.
Can I use CAGR for SIPs?
No, use XIRR for regular investments.
Is a higher CAGR always better?
Not necessarily, since it ignores risk and volatility.
How do I calculate CAGR in Excel?
Use =(End/Start)^(1/Years)-1 or the RRI function.
Does CAGR include inflation?
No, it is a nominal return unless you adjust it.
Last reviewed 8 November 2026. Rates, limits and rules change, so confirm figures with the official source before you act.
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Information on AMTools is for general guidance and is not professional financial, tax, legal or medical advice. Rules, rates and limits change, so check the latest official source before acting.