🎯 What is CAGR?
CAGR (Compound Annual Growth Rate) represents the mean annual growth rate of an investment over a specified period of time longer than one year.
Key Concept:
It smoothes out market volatility by showing what an investment would yield annually if it grew at a constant rate with compounding.
📐 The CAGR Formula
CAGR = (Ending Value / Beginning Value)^(1 / Years) - 1
Example: ₹1,00,000 grows to ₹2,00,000 in 5 years:
CAGR = (200000 / 100000)^(1/5) - 1 = 14.87%
📊 Why Use CAGR?
Fair Comparison
Compares different investments (e.g. Mutual Funds vs Real Estate vs FD) across different timeframes.
Smooths Volatility
Eliminates year-to-year swings to give a clean annualized figure.
⚖️ CAGR vs XIRR
CAGR:
Best for one-time (lumpsum) investments with single entry & exit dates.
XIRR:
Best for recurring cash flows like SIPs, SWPs, or multiple buys/sells.