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Compound Annual Growth Rate (CAGR) is the constant annual rate at which an investment would have grown from its initial value to its final value if it had compounded at a steady rate over the measurement period. It is the most widely used metric for expressing lump-sum investment returns and benchmarking fund performance.
Formula
CAGR = (Ending Value ÷ Beginning Value)(1/n) − 1, where n = number of years in the holding period. For partial years, n = (days held ÷ 365).
Worked Example (INR)
An investor puts ₹1,00,000 in a large-cap equity mutual fund on 1 April 2019. By 31 March 2024 (exactly 5 years), the investment grows to ₹1,76,234.
CAGR = (1,76,234 ÷ 1,00,000)(1/5) − 1 = (1.76234)0.2 − 1 ≈ 12.0% per annum.
This means the investment compounded at 12% every year on average — regardless of what actually happened year-to-year (e.g., -15% in Year 2, +25% in Year 3).
CAGR in SEBI-Regulated Disclosures
SEBI mandates specific return disclosure formats for mutual fund advertisements and factsheets under SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2021/647 and SEBI MF Regulations 1996, Schedule VII:
- Schemes must disclose point-to-point returns for 1-year, 3-year, 5-year, and since-inception periods as CAGR (for schemes older than 1 year)
- For schemes less than 1 year old, absolute return (not annualised) is required
- Benchmark returns must be shown alongside scheme returns for the same periods
Source: SEBI MF Regulations 1996, Schedule VII; SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2021/647.
CAGR Across Asset Classes (Historical Reference)
| Asset Class | Approximate 10-yr CAGR (FY 2015–2025) | Source |
|---|---|---|
| Nifty 50 TRI | ~13–14% | NSE India historical data |
| Nifty 500 TRI | ~14–15% | NSE India |
| Gold (MCX) | ~10–11% | MCX Gold spot |
| India 10-yr G-Sec | ~6–7% (yield, not price) | RBI rbi.org.in |
| Savings Account | 3–4% | RBI deposit rate data |
Historical returns are for reference only. Past performance is not indicative of future returns.
CAGR vs XIRR — Key Distinction
| Dimension | CAGR | XIRR |
|---|---|---|
| Cash flows | Single buy, single sell | Multiple irregular dated flows (SIP, SWP, top-ups) |
| Ease of calculation | Simple formula | Iterative numerical solver |
| Used in | Fund factsheets, lump-sum comparisons, index returns | SIP returns, portfolio-level returns with partial redemptions |
| AMC/SEBI mandated for | Factsheet trailing returns (lump-sum) | SIP return disclosure in ads (SEBI Circular 2021/647) |
CAGR Limitations
- Hides volatility: A fund with 12% CAGR could have experienced -40% in one year and +50% in another. CAGR shows the endpoint, not the journey. Rolling returns address this.
- Wrong for SIPs: Applying CAGR to a SIP portfolio overstates or understates returns depending on market timing. Always use XIRR for multi-cashflow portfolios.
- Endpoint sensitivity: CAGR is sensitive to the chosen start and end dates. A fund started at a market peak will show lower CAGR than one started at a trough.
Related terms: XIRR, Rolling Returns, IRR.
Past performance is not indicative of future returns. ARN-314872. APMI APRN-01658. Content is informational.