Question 1

What is CAGR?

Accepted Answer

CAGR stands for Compound Annual Growth Rate. It measures the mean annual growth rate of an investment over a specified period longer than one year. CAGR smooths out the volatility of year-to-year returns and provides a single rate that represents the steady growth needed to go from the initial value to the final value over the given time period.

Question 2

How is CAGR calculated?

Accepted Answer

CAGR is calculated using the formula: CAGR = (Final Value / Initial Value)^(1/Number of Years) - 1. For example, if you invested Rs 1,00,000 and it grew to Rs 2,00,000 in 5 years, the CAGR would be (2,00,000/1,00,000)^(1/5) - 1 = 14.87%.

Question 3

What is a good CAGR for mutual funds in India?

Accepted Answer

A good CAGR for equity mutual funds in India is typically 12-15% over the long term (10+ years). Large-cap funds may deliver 10-12% CAGR, mid-cap funds 12-15%, and small-cap funds 15-18% over extended periods. However, past performance does not guarantee future returns. Debt mutual funds generally provide 6-8% CAGR.

Question 4

What is the difference between CAGR and absolute returns?

Accepted Answer

Absolute return is the simple percentage gain or loss on an investment without considering the time period. CAGR, on the other hand, annualizes the return by factoring in the investment duration. For example, a 100% absolute return over 5 years translates to approximately 14.87% CAGR. CAGR is more useful for comparing investments held for different durations.

Question 5

Can CAGR be negative?

Accepted Answer

Yes, CAGR can be negative. A negative CAGR indicates that the investment has lost value over the period. For example, if you invested Rs 1,00,000 and it decreased to Rs 70,000 over 3 years, the CAGR would be negative (-11.27%), indicating an average annual decline in value.

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Results

Year-wise Growth