What is CAGR?
Compound Annual Growth Rate (CAGR) is the rate at which an investment grows from its initial value to its final value over a given time period, assuming profits are reinvested each year. It smooths out volatility to give a single comparable growth rate.
How is CAGR calculated?
CAGR = (Final Value / Initial Value)^(1 / Number of Years) − 1. For example, if ₹1,00,000 grows to ₹1,61,051 in 5 years, the CAGR is (1,61,051 / 1,00,000)^(1/5) − 1 = 10%.
CAGR vs. Absolute Return
Absolute return tells you the total gain (%), while CAGR tells you the annualized rate. For comparing investments of different durations, CAGR is the correct metric to use.
When to use Future Value mode?
Use Future Value mode when you know the expected CAGR (e.g., from a mutual fund factsheet or historical benchmark) and want to project what your investment will be worth after a certain number of years.