CAGR is crucial to calculate the annual growth rate of your investment in a particular time frame. It also helps you compare two investment avenues with respect to the annual growth rate in a specific tenure.
CAGR measures the average annual growth/fall of your investment compounded
over a certain time period.
The compound annual growth rate (CAGR) gives you the average returns earned on your investment every year. It’s an effective measure to compare two investment avenues.
For example,
Let’s say, your investment ‘A’ of INR. 1,00,000 appreciated to INR. 1,70,000 in 3 years. The absolute return will be 70%
Now, your investment ‘B’ of INR 1,00,000 increased to INR. 1,70,000 in 5 years. The absolute return will still be 70%
But, for investment ‘A’, the average annual return will be 19.34% p.a., and for investment ‘B’ the average annual return will be 11.20% p.a.
| Investment | Investment Amount | Appreciated Amount | Number of Years | Absolute Return | CAGR |
|---|---|---|---|---|---|
| A | 1,00,000 | 1,70,000 | 3 | 70% | 19.34% |
| B | 1,00,000 | 1,70,000 | 5 | 70% | 11.20% |
Therefore, while comparing the two schemes, it is important to look at the average annual return over a period. You can use the CAGR calculator to compare returns on two investment avenues over a period.
Absolute returns measure your overall returns over the entire duration. Whereas, CAGR shows you the average returns you’ve earned every year.
CAGR calculator accepts three simple inputs from you:
The CAGR calculator uses the following formula to calculate the average annualized return on your investment.
CAGR= [(Final value of the investment/Initial Investment)^(1/number of years)]-1
From the above example,
CAGR = [(170000/100000)^(⅓)]-1 = 19.34%
VNN Wealth’s CAGR calculator is a free and easy-to-use online tool. It can help you compare two mutual funds in terms of average annual return.
The calculator can also be used to project the growth of your business. You can input the initial and final value and the calculator will produce the yearly growth.
The CAGR calculator can assist you in comparing two investments. You can input the initial investment and current value of your investments in the calculator and compare the performance growth. That way, you can realign your portfolio.
Please note that- return on your investment may depend on market movements. Therefore, the CAGR calculator can only show the estimated return. The actual return may change over time.
CAGR is crucial to calculate the annual growth rate of your investment in a particular time frame. It also helps you compare two investment avenues with respect to the annual growth rate in a specific tenure.
