You invested ₹5 lakh in a mutual fund that grew to ₹12 lakh in 7 years. The absolute return is 140% — sounds massive. But the CAGR is 13.31%, which is a more meaningful number. After adjusting for 6% inflation, the Real CAGR is only 6.89% — your actual purchasing power grew by less than 7% per year. Always look at Real CAGR to understand true wealth creation. Calculate your SIP returns or compare with FD returns.
CAGR (Compound Annual Growth Rate) is the average annual rate at which an investment grows over a specific period, assuming all profits are reinvested. Unlike simple average return which can be misleading, CAGR provides a geometric mean of annual growth — smoothing out yearly volatility into a single annualised rate. It is the standard benchmark metric used by SEBI, mutual fund houses, and financial advisors in India to express investment performance, because it accounts for the time value of money that absolute return ignores.
This calculator goes beyond standard CAGR tools by also showing your Real CAGR after inflation — the actual purchasing power growth of your investment. Because what matters is not just how much your money grew in nominal terms, but whether it outpaced the 6% annual erosion that inflation causes. Use our Inflation Calculator to see exactly how much value erosion occurs over your investment period.
The Real CAGR formula (Fisher equation) is the key metric that separates real wealth creation from nominal illusion. For detailed inflation formulas, see our Inflation Calculation Formula page and the Real Rate of Return guide.
| Metric | Best For | Accounts for Time? | Multiple Cash Flows? | Example |
|---|---|---|---|---|
| Absolute Return | Short-term (under 1 year) | No | No | Stock bought at ₹100, sold at ₹130 = 30% absolute |
| CAGR | Lump sum held 1+ years | Yes (annualised) | No (only start/end) | ₹1L → ₹2L in 5 years = 14.87% CAGR |
| XIRR | SIPs, irregular investments | Yes (exact dates) | Yes | Monthly SIP of ₹10K for 3 years = 15.2% XIRR |
Rule of thumb: Use CAGR for one-time investments. Use XIRR for SIP investments with regular contributions. Never use absolute return for periods longer than 1 year — it is meaningless without time context. For a deeper comparison, read our guide on CAGR vs Absolute Returns.
Here is how major Indian investment instruments have performed historically, measured by CAGR. The "Real CAGR" column shows the actual purchasing power growth after adjusting for 6% average inflation:
| Asset Class | 10-Year CAGR | 20-Year CAGR | Real CAGR (after 6% inflation) | Risk Level |
|---|---|---|---|---|
| Nifty 50 (Index) | 12-13% | 13-15% | +6 to +8% | High |
| Sensex | 12-14% | 14-16% | +7 to +9% | High |
| Gold (India) | 8-10% | 10-12% | +3 to +5% | Medium |
| PPF | 7.1-8% | 8-8.5% | +1 to +2% | Zero (Govt backed) |
| EPF | 8.25-8.5% | 8.5-9% | +2 to +3% | Zero (Govt backed) |
| Bank FD (pre-tax) | 6-7% | 7-8% | −1 to 0% (after tax) | Zero |
| Savings Account | 3-4% | 3.5-4% | −2 to −3% | Zero |
| Real Estate (Tier 1) | 5-8% | 8-12% | +0 to +5% | High (illiquid) |
Calculate returns for specific instruments: PPF Calculator, EPF Calculator, FD Calculator, Gold Calculator. For investing in equity via SIP, use our SIP Calculator or Lumpsum Calculator. Compare all options with our Real Returns Calculator.
This is the core insight that most CAGR calculators miss and that inflationcalculator.in uniquely provides. Your nominal CAGR tells you how your account balance grew. Your Real CAGR tells you how your purchasing power grew — which is what actually matters for your financial goals.
| Investment | Nominal CAGR | Tax Impact | Post-Tax CAGR | Real CAGR (6% inflation) | Verdict |
|---|---|---|---|---|---|
| FD (30% slab) | 7.0% | −2.1% | 4.9% | −1.04% | Losing money |
| PPF | 7.1% | 0% (tax-free) | 7.1% | +1.04% | Barely positive |
| Equity SIP (LTCG) | 13% | ~1.5% | ~11.5% | +5.19% | Real wealth creator |
| NPS (Equity) | 11% | 60% tax-free | ~10% | +3.77% | Good with tax benefit |
Notice how the FD — often considered "safe" — actually destroys purchasing power after tax and inflation. This is the silent wealth erosion that our Purchasing Power Calculator visualises. For retirement planning where Real CAGR over decades matters most, use our Retirement Corpus Calculator. To understand why FDs underperform, read our guide on FD Real Returns After Inflation.
While CAGR is a powerful metric, it has important limitations you should understand. CAGR assumes smooth, consistent growth and completely masks year-by-year volatility — a fund showing 12% CAGR over 10 years may have had years of −20% and +40% returns. CAGR does not account for investment risk, standard deviation, or drawdowns. It cannot handle multiple cash flows (use XIRR for SIPs). CAGR ignores taxes, exit loads, and transaction costs unless you manually adjust the ending value. And CAGR is backward-looking — past CAGR does not guarantee future performance. For a comprehensive investment comparison that goes beyond CAGR, read our guides on SIP vs Lumpsum, Mutual Fund Real Returns, and Gold vs FD vs Equity.
CAGR (Compound Annual Growth Rate) is the average annual rate at which an investment grows over a specific period, assuming profits are reinvested each year. Unlike absolute return which ignores time, CAGR tells you the annualised growth rate — making it possible to compare investments with different time horizons. For example, a 100% absolute return over 5 years sounds impressive, but the CAGR is only 14.87%, which gives a much clearer picture of actual annual performance.
The CAGR formula is: CAGR = (Ending Value / Beginning Value) ^ (1 / Number of Years) - 1. For example, if you invested ₹1 lakh that grew to ₹2 lakh in 5 years: CAGR = (200000/100000)^(1/5) - 1 = 14.87%. This means your investment grew at an average compounded rate of 14.87% per year, even though the actual year-by-year returns may have varied significantly.
Absolute return measures the total percentage gain or loss without considering time — a ₹1 lakh investment growing to ₹1.5 lakh gives 50% absolute return whether it took 2 years or 10 years. CAGR annualises this return accounting for compounding: 50% over 2 years is 22.47% CAGR, but 50% over 10 years is only 4.14% CAGR. Always use CAGR for investments held longer than one year to get a meaningful performance comparison.
Use CAGR for lump sum investments where you invested once and measured the outcome after a period. Use XIRR (Extended Internal Rate of Return) for investments with multiple cash flows at irregular intervals — like SIPs, where you invest monthly over several years. CAGR only considers the beginning and ending values and ignores intermediate transactions. For SIP returns, XIRR gives a far more accurate picture because it accounts for the timing and amount of each individual investment.
A good CAGR depends on the asset class and the risk involved. For equity mutual funds and stocks, 12-15% CAGR is considered good over a 10+ year horizon in India. For debt instruments like PPF or FDs, 7-8% CAGR is typical. Gold has historically delivered 8-10% CAGR in India. Any CAGR above 6% (India's average inflation) means your investment is generating positive real returns — your wealth is actually growing in purchasing power terms. The Nifty 50 index has delivered approximately 12-13% CAGR since inception.
Real CAGR is your compound annual growth rate after adjusting for inflation. The formula is: Real CAGR = ((1 + Nominal CAGR) / (1 + Inflation Rate)) - 1. If your investment delivered 12% CAGR but inflation was 6%, your Real CAGR is approximately 5.66% — meaning your actual purchasing power grew by only 5.66% per year, not 12%. This is the true measure of wealth creation. Many investors are shocked to discover that their FD delivering 7% CAGR actually has a negative Real CAGR after tax and inflation.
Yes, CAGR can be negative if your investment lost value over the period. If you invested ₹1 lakh and it dropped to ₹70,000 over 3 years, the CAGR would be -11.27%. A negative CAGR indicates your investment declined on a compounded annual basis. This is common in individual stocks that underperform, sector-specific funds during downturns, or poorly timed real estate investments.
CAGR is the standard metric for comparing mutual fund performance in India. SEBI mandates that mutual funds display returns for 1-year, 3-year, 5-year, and since-inception periods — all expressed as CAGR. When comparing two funds, always compare CAGR over the same time period. A fund showing 15% CAGR over 5 years has outperformed one showing 12% CAGR over the same period. However, also consider consistency (rolling returns), risk (standard deviation), and category average before choosing.
Disclaimer: CAGR calculations are based on the values you input and assume smooth compounded growth. Past CAGR does not guarantee future returns. Real CAGR uses an assumed 6% inflation rate (India's long-term CPI average). This tool is for educational purposes only — consult a SEBI-registered financial advisor for personalized investment advice.