CAGR (Compound Annual Growth Rate) is a measure of the average annual growth rate of an investment over a specified period, assuming the profits are reinvested. It helps investors understand how much their investment has grown on a yearly basis.
Formula for CAGR:
CAGR = (Ending Value / Beginning Value) ^ (1 / Number of Years) - 1
Example Calculation:
If you invested ₹1,00,000 and it grew to ₹1,50,000 in 3 years, the CAGR would be:
CAGR = (1,50,000 / 1,00,000) ^ (1 / 3) - 1
CAGR = (1.5) ^ (1/3) - 1
CAGR ≈ 0.1447 or 14.47%
Interpretation:
This means the investment grew at an average rate of 14.47% per year over 3 years. CAGR smooths out the fluctuations in returns, providing a more accurate measure of investment performance over time.
CAGR (Compound Annual Growth Rate) is a measure of the average annual growth rate of an investment over a specified period, assuming the profits are reinvested. It helps investors understand how much their investment has grown on a yearly basis.
Formula for CAGR:
CAGR = (Ending Value / Beginning Value) ^ (1 / Number of Years) - 1
Example Calculation:
If you invested ₹1,00,000 and it grew to ₹1,50,000 in 3 years, the CAGR would be:
CAGR = (1,50,000 / 1,00,000) ^ (1 / 3) - 1
CAGR = (1.5) ^ (1/3) - 1
CAGR ≈ 0.1447 or 14.47%
Interpretation:
This means the investment grew at an average rate of 14.47% per year over 3 years. CAGR smooths out the fluctuations in returns, providing a more accurate measure of investment performance over time.
