What is CAGR – Compound Annual Growth Rate: Video

Last Updated on December 29, 2015

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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M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements write to pattu [at] freefincal [dot] com

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