What is CAGR – Compound Annual Growth Rate: Video

Mutual Funds, Videos

The CAGR or the compound annual growth rate also referred to as the compounded annualized growth rate or annualized return is the standard way of visualizing growth of an investment in a volatile instrument such as gold, debt fund, equity fund or stocks.

The CAGR return replaces volatile annual returns by a single return. That is all the volatility is swept under the carpet (averaged out, technically) and single return which represents compounded growth is presented.

Or in other words, we find out the return assuming the instrument offers compound interest. This is merely a representation of growth and not how the investment has grown in value year upon year.

Here is a 5-minute video to clarify what the CAGR stands for.

A detailed explanation can be found here:
What is Compound Annual Growth Rate (CAGR)? Part I: Lump Sum Investing
Understanding the Nature of Stock Market Returns

If you want to know more about XIRR, check this out: What is XIRR? (video coming soon)

 

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Updated: December 29, 2015 — 2:37 pm

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M. Pattabiraman

This article is authored by M. Pattabiraman. He is the co-author of two books: You can be rich too with goal based investing and Gamechanger. He is a patron and co-founder of "Fee-only India" an organisation to promote unbiased, commission-free investment advice “Pattu” as he is popularly known, publishes research, analysis and holistic money management advice at freefincal.com which serves more than one million readers a year. Frefincal.com has more than a 100 free calculators on different aspects of insurance and investment analysis, including a robo advisory template for use by beginners.