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Investing term

CAGR

A plain-English definition of CAGR— what it means, how it works, and a simple example.

Quick answer

CAGR (Compound Annual Growth Rate) is the smoothed average yearly return of an investment over a period, as if it grew at a steady rate each year.

Real investments rarely grow by the same amount every year — they jump up and down. CAGR strips out that year-to-year noise and tells you the single yearly rate that would have taken you from the start value to the end value.

The idea is the ending value divided by the starting value, annualised over the number of years. If ₹1 lakh grows to ₹2 lakh in 6 years, the CAGR is about 12.2%.

CAGR is useful for comparing investments on an equal footing, but it hides volatility — two funds with the same CAGR can carry very different risk. For investments with irregular cash flows, XIRR is more accurate.

Put CAGR into practice

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Related terms

XIRRCompound InterestInflationMutual Fund

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A note on accuracy:this definition is for general education, not personalised financial or tax advice. Figures are illustrative and rules can change — confirm anything that affects a real decision.