What is CAGR?
Compound Annual Growth Rate (CAGR) means the average annual growth rate of an investment over a specific time period
where compound refers to the interest earned and is reinvested at the same rate as the principal amount. It is usually
calculated for lumpsum investment amounts. Let's understand CAGR by an example, you invested ₹1,000 in 2013 and it
became ₹3,000 in 2023 so what would be the CAGR on your investment?
EV = ending value of the investment (₹3,000) &,
BV = beginning value of the investment (₹1,000)
Formula: CAGR = (EV/BV)^(1 / Number of Years) – 1 where, CAGR= (3000/1000)^(1/10)-1
= (3)^(0.1)-1
= 1.261−1
= 0.261 OR 26.1%
This means, your investment grew at a 26.1% compounded rate of return annually.
Note:- CAGR does not take volatility into account.