CAGR Calculator For Stocks, Index, Mutual Funds, FD Calculate In 3 Easy Steps

Compound Annual Growth Rate in short CAGR becomes a very useful number to know if you are thinking of investing your money and CAGR calculator online helps you in finding returns in 3 easy steps.

You can use the below CAGR calculator to assist in finding the returns on investment made in stocks, lumpsum amount in SIP, Fixed deposits, have made investment in any index such as Nifty50, various mutual fund schemes  and many other financial instruments.

You just need to enter the initial invested amount, the money you got or suppose to get at the end of the investment and tenures in months.

Moneycontain CAGR calculator  is a 2 in 1 calculator on one hand you can find the cagr returns on the other hand you can also able to find the absolute return on the investment simultaneously when you enter the values in fields that too in months instead of years.

So go ahead and check how much return your investment has generated for you.


 



 

Now that you have calculated the Compound Annual Growth Rate as well as absolute returns on the investment you have made, it is very important to know most of the aspects related to both type of returns.

Below i have discussed them in detail and you should read them to find not only the answers but to be more aware when you are investing your hard earned money.

 

What Is Compounding? 

In layman terms compounding means the ability of money to grow when the gains of year 1 is reinvested for year 2 or more.

Compound interest is also termed as “Future Value (FV)” of the money. If you have to analyse, what would be the value of money that we have today sometime in the future, then we need to move the ‘money today’ through the future i.e. future value of that money.

One of the prominent scientist of this century, Nobel Prize winner in Physics Albert Einstein quoted once about same.

He said “Compound interest is the eighth wonder of the world. He who understands it, earns it, he who doesn’t, pays it.”

This classic statement may sound absurd to you at first, but it is vital for wealth building. Let us understand compounding through an example

For example: Your dad have thought about you education when you turn to college at age of 18, when you are were 3 years old he decide to invest Rs.100,000 lumpsum for 15 years in a index fund.

Assuming the fund has generated an average return of 15% every year which is very nominal, just to let you know Nifty next 50 (index) alone have given 17.2% return on average every year since its inception and there are many stocks who have given more than 25, 35% return every year.

Your 1 lakh would have turned to Rs.8,13,706 after you turning to 18.

You can use moneycontain compound interest calculator to know the future value of you investment.

Below is the formula to calculate the compound interest :

Compound Interest = (P(1+i)^n) – P

Where,

P = Principal amount

I = annual interest rate

N = number of compounding periods

So, in compounding the interest you earn gets added to the principal amount and get reinvested, I hope you now have better understanding about compounding.

Now, you may be thinking if i can know how much would i receive using the compound interest calculator or doing it manually than what is purpose of knowing CAGR ?

See, when you decide to invest your money prior doing so, if you have known the compounded annual growth rate of that fund or stock than it becomes easy for you to compare the best and go with the highest cagr funds.

Secondly, suppose you have invested some money in a mutual fund scheme, fixed deposit or a stock and after 15 months you wanted to check the return it has generated than cagr calculator can help you find the same moreover depending upon the return you can then decide to whether continue with your investment or to switch.

Let us first understand with an example about cagr and why it is important in detail below.

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What Is CAGR?

Compound Annual Growth Rate aka CAGR shows the average rate at which an investment grows year on year when you have reinvested the profits at the end of each year. The CAGR would calculate the rate of return based on the beginning and ending balances over the investment period.

Cagr tells you the actual returns of an investment generated over a year keeping aside the volatility.

Suppose, you have invested in a stock let say RELIANCE Industries when it was trading at Rs.500 and you bought 1000 shares now this is the beginning investment value 500*1000 = Rs.500,000.

You kept this investment for let say 6 years 6 months, now every year the return generated by reliance can be positive as well as negative, you will not be able to find how reliance as an investment given you growth on average every year till now.

Now in order to find the same you just need to simply enter the starting value and the current value also known as the end value and investment period in above cagr calculator to find the average return the stock has created.

Assuming the current value of stock after 6 years 6 months (78 months) is Rs.1300 therefore the current value of your invested amount is 1000*1300= Rs.13 lakhs.

Let us use the above calculator to know CAGR it has generated over 78 months

 

What Is CAGR?

 

As, you can see the reliance as an individual stock have given you 15.84% cagr returns year on year, for the time being leave aside the absolute return we will discuss them as well in detail below.

This can tremendously help you choosing and building better portfolio while making any investment. However keep in mind cagr does not take count of the risk involved and the volatility of your investment.

In other words when you see the cagr of any fund for last 3, 5 7 years it shows you the steady growth rate over the duration and does not shows you the exact returns given by the fund every year, it may happen the returns generated by the fund you choose is negative for the first year & during second year it turn slightly positive so on and so forth.

 




How Accurate Is Moneycontain CAGR Calculator?

There are many calculator available online to calculate cagr returns, however many of them are restricted either to show you returns in years and few of them are showing even wrong result.

Hence at moneycontain i always make sure there is no room for error because it is about your money, therefore you see any calculator on the moneycontain is gone through a accuracy check from a prominent banking websites.

Although it was hard to find the cagr calculator from any banking website what i did is just opposite, i have taken a screenshot of compound interest calculator from icicipruamc.com, this is same as moneycontain compound interest calculator, the point is if you see in below image the initial amount is Rs.50k invested for a period of 4 years with 10% expected return, the answer shows you Rs.73,205.

 

How Accurate Is Moneycontain CAGR Calculator?

 

Now, using the same amount invested initially and received the final corpus at the end after 4 years of investment the rate of return can be easily and accurately found. Checkout the below snapshot taken with the same value showing you the CAGR as 10%, which by the way shows you how accurate is moneycontain online cagr calculator.

 

Why is CAGR important?

 

How CAGR Formula Is Derived?

Even if you are not a math enthusiast like me, there is always a inner curiosity to know the formula through which a tool can be developed or used. In order to calculate the cagr returns below is the equation used:

CAGR = [(Ending value/Beginning Value)^(1/N)]-1

The above formula depends on three variables, the beginning value, the ending value, and the tenure (N).

When you fill the above three variables, the CAGR calculator will give you the rate of return on investment.

For example, if you had a beginning value of investment of Rs.10,000 and the ending value of investment of Rs.40,000 over 2 years, then your CAGR would be 100%.

CAGR = [(40000/10000)^(1/2)] -1

How do you calculate monthly CAGR?

Similar to calculate annually we call it cagr, CMGR is used for monthly average growth, the formula remains the same only thing is instead of year in tenure you put months.

Keeping the same in mind instead of years i have kept the tenure in months for above calculator, so it becomes easy even if you want to find the monthly compounded growth rate of your investments.

Now, let us discuss about absolute return and what does it mean?

 



 

What Is Absolute Return Rate?

Absolute return also known as point to point return is the simplest form of return to know how much gain or loss an investment has made irrespective of the tenure. The gain or loss is represented as a percentage of the total investment.

You can use absolute return formula to calculate the returns for any investment whether reals estate, gold, stocks, funds, etc. Only thing is it does not count the value of time and compounding effect like in case of cagr, in other words absolute return does not care about the tenure of investment or whether the investment have been reinvested, it just tells you the gain/loss in absolute terms.

For example: Suppose you bought SBI at 200 and sold it 250. How much percentage return did you generate?

The answer is 25%, CAGR factors in the time component which we had ignored when we calculated the absolute return.

Another point to keep in mind is always use CAGR when you want to check returns over multiple years and use absolute return when your time frame is for a year or lesser in case of stocks, funds or any other financial instruments.

Whereas when you just need to find the percentage of increase or decrease and does not care about the duration or compounding effect absolute return can be helpful.

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How is Absolute Return Calculated?

Formula used to calculate Absolute return is :

Absolute return =[Ending Period Value / Starting Period Value – 1]*100

Let us understand this through an example an investor invested in real estate for Rs.250,000. Two years later, the saleable value of the property rose to Rs.345,000. Applying the above formula to the investment:

Absolute return = (3,45,000/2,50,000 -1)*100 = 38%

Here, the investor made an absolute return of 38% on the property.

 

What is difference between CAGR and Absolute Return?

The major difference between CAGR and absolute return is the latter does not account for duration or tenure of the investment as well as misses the compounding effect.

So when you have to compare whether your investments over a certain period has added a significant growth you should consider calculating the returns by using CAGR and not absolute.

Moreover, if your duration is equal or less than a year you can calculate the returns using the absolute return rather than using cagr.

For example suppose you did a short trade in market and bought ICICI Bank stock, let say you bought it at Rs.250 and within 10 days the stock moved to Rs.265, here the absolute return is 6% so using it for less than a year is workable.

Whereas if the same investment is made for let say 13 months and stock moved to Rs.265 than the absolute return will still show you the same return not taking count of the duration of the investment, on the other hand the cagr returns are 5.53% it means cagr  helps in smoothen the returns while doing the calculation.

Another point is cagr lets you easily compare two investments held for different periods.

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Which is better CAGR or Absolute return?

CAGR is always a better option to calculate the returns in comparison to absolute return, if you are looking to invest in mutual funds whether through lumpsum or fixed deposits CAGR is the best method which tells you how exactly the growth has happened to the investments over the years.

So, while investing for longer term you need to keep in mind along with the volume of return it is also important to understand the pace or speed at which your investment has grown every year.

However, if you are making investment by systematic investment plan aka SIP or Recurring deposit for every month than CAGR has limitation and it is always better to use another type of calculation known as Extended Internal Rate of Return, XIRR. Let us know in detail about the same.

What Is XIRR?

Extended Internal Rate of Return (XIRR) is a calculation which helps while you make regular investments in mutual funds through SIP route, In other words if you are investing monthly, weekly or even daily CAGR alone can’t tell you the exact return.

Moreover if your form of investment have cash inflow as well as outflow or redeeming through SWP i.e you also withdraw amounts in between from your fund CAGR is not the right tool. CAGR is good for lumpsum investments, you may thinking why is it so?

It is because each installment in an SIP is a new investment, and therefore you have amounts invested for different time duration. For example, in a 3-year SIP, your first installment will be invested for 3 years, second for 2 years 11 months, 3rd for 2 years 10 months and so on therefore each amount compounds for a different time period.

CAGR does not take account of the each installment, the formula itself requires only beginning , end value and tenure whereas in case of XIRR each installment is calculated, and then they are added together to give you the overall Compounded Annual Growth Rate.

Think of XIRR as the accumulation of multiple CAGR. It is the average rate earned by each and every cash flow invested during the period.

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What Is XIRR Formula In Excel?

The XIRR is the formula used in excel, it is a financial function that returns the internal rate of return (IRR) for a series of cash flows that occur at irregular intervals.

check out the below image to understand more.

 

What Is XIRR?

 

Syntax used
=XIRR (values, dates, [guess])
Arguments
  • values – Array or reference to cells that contain cash flows.
  • dates – Dates that correspond to cash flows.
  • guess – [optional] An estimate for expected IRR. Default is .1 (10%)

points need to keep in mind before using XIRR in excel:

  • The values array must contain at least one positive value and one negative value
  • Dates must be valid Excel dates that correspond to values
  • Values and dates should be in chronological order
  • The supplied values and dates arrays have different lengths
  • The calculation fails to converge after 100 iterations

 



 

Difference Between CAGR & XIRR?

Four major difference between cagr and xirr are listed below in image:

 

Difference Between CAGR & XIRR?

 

Which is better CAGR or XIRR?

Cagr is better for lumpsum investments or a one time investments made in stocks, index funds, fixed deposits etc. whereas XIRR are better for monthly SIP returns or recurring deposits as well as SWP systematic withdrawal plans.

Disadvantages Of CAGR

You can call it not disadvantage but limitation of CAGR calculation. Below are some of the limitations of using CAGR:

  • CAGR ignores volatility and formula assumes there won’t be any change in growth during the investment period (which can even be negative), it only works on the beginning, ending value, and the number of investments.
  • As mentioned above CAGR can’t be used in the case of SIP mode of investments as the formula considers only the beginning value for calculation purposes. Hence it is used for lumpsum or one time investments only.
  • Your investment decision can’t be made based on CAGR itself, specifically if you are investing in equities as you need to look for the other risks like systematic and un-systematic risks.

 

Is Annualized return and CAGR same?

Annualized return is the amount of money the investment has earned for the investor per annum. Mutual funds return on an investment is reported on an annualized basis.

For example 15% annualized return in 5 years means 15% return earned every year for the past five years and not 15% total return in 5 years. So, yes annualized and cagr are one and the same thing.

 

What Is CAGR of Nifty?

CAGR of nifty means the annualized returns nifty50 has created, below image tells you how much cagr nifty has generated since inception.

 

Nifty50 and Nifty next 50 Index CAGR(Compounded Annual Growth Rate) Since inception

 

Investors choose index fund such as nifty 50 index which purchase all the stocks in the same proportion as in a nifty index to invest because of less risks involved, that’s why the return is moderate, however if you invest in good stock (fundamentally), the return would be much bigger. As an example:

MRF shares have generated multi fold returns for the investors over the years.

If an investor had invested Rs 1 lakh in MRF shares 25 years ago, the corpus would have been worth Rs 74.02 crore in April 30, 2018 when the stock was its peak.

Even 1 share costed Just Rs.11 in the year 1993 which at the peak (2018) was around Rs.81,423.

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CAGR Calculator With Inflation?

Rather on focusing only on nominal rate of return, i.e. interest rates offered by banks or the returns generated by mutual funds schemes one should always concentrate on real rate of returns.

Real rate of return is nothing but inflation adjusted rate of return. What matters most is whether your investment return able to beat inflation or not?

Due to inflation the prices or goods of any economy or country increase over a period of time. Hence you should account inflation while calculating your returns.

To account inflation in your future value investments either drop the expected rate of return on investment, for example, if you are expecting 15% return on your investment you need to subtract the inflation rate for same period.

To find the real interest rate, we take the nominal interest rate and subtract the inflation rate.

Real interest ratenominal interest rate − inflation rate.

So, if your investment grew at nominal interest rate of 15% CAGR you need to subtract the rate of inflation during the same period to get the actual worth.

So, let say the average inflation for last 5 years is 3.5% so instead of taking 15% expected return, you count your return on 12.5%.

However the above method to calculate the inflation is the basic estimation, as inflation and returns compound the correct way or formula to calculate real return is given below:

Inflation-adjusted return = (1 + Return) / (1 + Inflation) – 1 *100

Applying the formula by using above no.

(1+15%)/(1+3.5%)-1*100 = 11.11%, this is correct return you should expect on your investment post inflation. You can get the inflation rate from here for India.

At the same time there is another method or concept called present value or discounting, this helps you in knowing the (PV) present value of your future investments.

Calculate the present value of your future investment using moneycontain present value calculator.

Can CAGR be negative?

Yes the CAGR can be negative, for example suppose you made the investment for 2 years in a scheme and the first year the scheme does not able to perform as per the expectation due to various reasons ongoing in market, than of course it will impact the return which can be negative also sometime.

How do you calculate the CAGR of a stock?

To calculate the CAGR of stock you can use moneycontain cagr calculator , just enter the total investment made to buy the stock , fill the duration for which you hold the stocks and what is the current value or worth of your investments, you would easily get the CAGR return within seconds.

For example, suppose you bought PNB shares worth 1 lakh on 01 October 2020, and sold the same after holding for 2 years, at that time the shares are worth 1,65000, this accounts to cagr (annualized return) of 28.45%  or 65% overall return (absolute return) on the investment.

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Does CAGR include inflation?

No, CAGR does not count the rate of inflation, you need to either manually reduce the nominal rate of interest i.e. cagr returns with respect to the rate of inflation for the same period.

In other words if your investment grew at 12% cagr in last 3 years, you have to look for the inflation for the same period and subtract that from the cagr return to get the real rate of return on your investments.

 

How is SIP CAGR calculated?

Systematic investment plan or SIP for monthly returns can be calculated using XIRR formula which is a financial function in excel.

What Is A Good CAGR?

Anything above 10% cane be considered a good cagr return however you need to keep in mind the inflation which may eat up your returns.

 

Should I use absolute rate of return or CAGR?

Absolute returns provide a casual view of investment performance. It just tells you the rate of investment growth comparing the initial value of your investment to the final investment value.

On the other hand, CAGR gives you the average yearly growth rate of your investment. This is a more detailed and correct way to analyze your investments.

 



 

Conclusion:

I am sorry for the long post, but above things are very much needed to make you completely aware about the CAGR and other types of returns in market. I hope you have completely understood the concepts behind the returns offered by various schemes through different channels of operations.

Feel free to use cagr calculator which is really helpful while choosing the correct funds or when you make any investments in future.

If you are looking for making an RD recurring deposit than do check best banks in India with Highest RD returns and calculate the value of your RD Moneycontain free RD calculator .

Checkout the impact of inflation on your returns as well as your life using moneycontain inflation rate calculator and calculate your future expenses easily.

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Incase you are looking for any Home loan or want to calculate the monthly EMI, than do check moneycontain free home loan EMI calculator.

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Note: Please do not take this as any recommendation, to trade or invest. This is just for reference, to make you understand more about the CAGR calculator and its importance, under no circumstances intended to be used or considered as financial or investment advice, a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset.

Please do your own research and make investment. Moneycontain will not be responsible for any of your losses at all. The point made is for educational purpose only. All investments are subject to risks, which should be considered prior to making any investments.

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