What is CAGR?
Compound Annual Growth Rate
CAGR is the average annual rate at which an investment grows over a period of years, assuming profits are reinvested each year. It smooths out year-to-year volatility into a single, comparable number.
CAGR answers the question "what constant yearly growth rate would take my starting value to my ending value over N years?" It is not the same as the actual return in any single year — those can vary widely even when CAGR looks steady.
CAGR is most useful for comparing two investments of different types or holding periods on equal footing, since it strips out the effect of contribution timing and volatility.
Formula
CAGR = (Final Value ÷ Initial Value)^(1 ÷ Years) − 1Example
An investment of ₹1,00,000 that grows to ₹2,00,000 in 6 years has a CAGR of about 12.25% — even if the actual year-by-year returns were +30%, −10%, +25%, and so on.