CAGR — Mutual Fund Term Explained

Compound Annual Growth Rate. Measures how much a lump sum investment grew per year on average. Not ideal for SIP returns — use XIRR instead.

CAGR (Compound Annual Growth Rate) is the rate at which a lump sum investment grew each year assuming gains are compounded annually. Smooths out year-to-year volatility into a single annual growth rate.

CAGR is the standard metric for fund performance over 3Y, 5Y and 10Y. For SIP returns, always use XIRR.

Formula

CAGR = [(End Value ÷ Start Value)^(1/Years) − 1] × 100

Example

₹1 lakh invested 5 years ago is now ₹1.76 lakh → CAGR = (1.76)^0.2 − 1 = 12% p.a.

Related terms

• XIRR — Extended Internal Rate of Return. The most accurate way to calculate SIP returns — accounts for the exact timing and amount of each cash flow.
• Trailing Returns — Point-to-point returns calculated from today backwards. The most common return metric but sensitive to start/end dates.
• Absolute Return — Total profit or loss as a simple percentage, without annualising. Misleading for comparing across different timeframes.
• Annualised Return — Returns expressed as a yearly rate, making different investment periods comparable. For lump sum: CAGR. For SIP: XIRR.

Browse the full mutual fund glossary, or see this concept in action in the fund screener.