CAGR is the compound annual growth rate. If a value starts at one number and ends at another after a set number of years, CAGR is the constant yearly rate that would connect them, with growth compounded once a year.
It is not the average of each year’s return. A fund can rise 50% and then fall 50%, and the simple average looks calm. CAGR shows you are back where you started. It is a summary of the journey’s two ends. It is not a promise that next year will match it.
The formula uses the ending value, the starting value and the number of years. It assumes the money stayed invested and that any payout was put back in. It does not know the path in between. Two funds with the same CAGR can have felt very different to hold. A smooth 10% a year and a wild path that happens to land on the same end value share a CAGR and share nothing else about how you slept.
CAGR is also not XIRR. Use CAGR when you have one start date and one end date. Use XIRR when money moved in or out on several dates. A monthly SIP is that second case. The rate you type into a SIP projection is an assumption. A CAGR you compute from a statement is a measurement of the past.
A worked example
The CAGR calculator’s starting example takes ₹1,00,000 growing to ₹2,50,000 over 10 years. The engine’s rate is 9.6%. The gain is ₹1,50,000. That 9.6% is not a market forecast. It is the rate that joins those two numbers. If you instead type a rate and ask for a future value, the same engine compounds forward. Both modes are on the CAGR calculator.
A planning rate used elsewhere on the site for equities is 12%. That is an assumption for a SIP, not a CAGR you have earned. The SIP calculator at 12% for 15 years turns ₹10,000 a month into ₹50,45,760 before you decide whether that assumption was kind. The SIP guide says which number to read after the fact.
Mistakes people make
- Averaging yearly returns and calling the average a CAGR.
- Comparing a three-month result, annualised, with a ten-year CAGR.
- Using CAGR on a SIP statement. The dates of the instalments matter, so the statement’s XIRR is the fairer number.
- Treating 9.6% from the example as a return you should expect.
- Forgetting tax. The ₹1,50,000 gain is before any section 198 tax if you sell equity units.
The idea, and the tax if you sell
CAGR itself is not a section of the Act. It is the growth rate between two values. If the thing that grew is an equity fund and you sell it, the gain is taxed under section 198 or section 196 depending on the holding, not at the CAGR. The capital gains calculator is the tax step. The CAGR page stops at the rate.
Questions
Is CAGR the average of each year’s return?
No. A fund can rise sharply and then fall, and a simple average looks calm. CAGR is the single yearly rate that links the start value to the end value, with growth compounded once a year.
When should I use XIRR instead?
Use CAGR for one start and one end. Use XIRR when money moved on several dates. A monthly SIP is the second case. The three-instalment example on the XIRR page annualises to 6.56%.
Does CAGR include tax?
The CAGR calculator does not take tax off. A ₹1,00,000 start and a ₹2,50,000 end over 10 years is 9.6% before any capital-gains tax on a sale.
Sources
Figures checked 28 Oct 2026.