CAGR formula
CAGR = (ending value ÷ starting value)1/years − 1
If ₹1 lakh grew to ₹2.5 lakh in 7 years, CAGR = (2.5)1/7 − 1 = 13.99% a year. The total gain is 150%, but spread over 7 years with compounding, that's about 14.0% each year.
Questions people ask
What is CAGR?
Compound annual growth rate is the steady yearly return that would turn your starting value into your ending value over the period. It smooths out the ups and downs along the way.
CAGR or absolute return?
Absolute return is the total gain (150% here). CAGR spreads it over the years, which makes investments held for different lengths of time comparable.
When should I use XIRR instead?
When you invested in several instalments, such as a SIP, or took money out along the way. CAGR assumes one investment at the start.
Method and sources
CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1. How we calculate.
Last reviewed 22 Oct 2026 by the WealthFeedz team.