🚀 What Is CAGR?
The short term for Compound Annual Growth Rate is CAGR
CAGR tells you how much your investment grew each year on average, assuming the growth was steady and compounded annually.
Think of it like this:
If you invested â‚ą10,000 and it became â‚ą20,000 in 5 years, CAGR answers the question:
“If my money grew at the same rate every year, what would that rate be?”
🧠Why It’s Useful
- Smooths out ups and downs: Markets fluctuate, but CAGR gives you a clean, average growth rate.
- Makes comparisons easy: You can compare different investments over time, even if one had wild swings and the other was steady.
đź“Š The Formula
Here’s the math behind it:
\text{CAGR} = \left( \frac{\text{Ending Value}}{\text{Beginning Value}} \right)^{\frac{1}{n}} – 1
Where:
- Ending Value = how much your investment is worth now
- Beginning Value = how much you started with
- n = number of years
🧪 Example for You
Let’s say you invested ₹10,000 in a mutual fund, and after 3 years it’s worth ₹15,000.
Using the formula:
\text{CAGR} = \left( \frac{15,000}{10,000} \right)^{\frac{1}{3}} – 1 \approx 14.47\%
Moreover, your investment grew at an average rate of 14.47% per year.
