Understanding Compounded Annual Growth Rate (CAGR)
CAGR is one of the most popular metrics used to evaluate and compare the performance of financial investments. It represents the smoothed rate of return at which an investment would have grown if it had grown at a steady, constant rate compounded annually over the holding period.
Why CAGR Beats Absolute Returns
If an investment turns ₹1 Lakh into ₹2 Lakh over 10 years, the absolute return is 100%. However, this doesn't tell you the annual efficiency of your capital. Stretched over 10 years, a 100% absolute return translates to a CAGR of **7.18%**. Knowing the CAGR helps you compare stocks directly against bank fixed deposits or bonds to see if you are truly beating the market.
How CAGR is Calculated
The formula to solve for CAGR is: \[CAGR = \left( \frac{\text{Final Value}}{\text{Initial Value}} \right)^{\frac{1}{\text{Years}}} - 1\] Our interactive solver handles this calculation instantly and compiles a year-by-year compounding table to show how the starting capital steadily reaches the target value.