CAGR (Compound Annual Growth Rate) measures your investments' average annual growth over a given period. It shows you the average rate of return on your investments over a year. CAGR is a helpful tool for investors because it precisely measures investment growth (or decline) over time. When calculating CAGR, profits are assumed to be reinvested at the end of each year of the time horizon. Therefore, CAGR is a representative number, not an accurate return. In most cases, an investment cannot grow at the same rate year after year. Despite this, the CAGR calculator is widely used to compare alternative investments.
Keeping this common application of the calculation in mind, it is prudent that investors find a convenient way to calculate CAGR. Anyone who wants to estimate the return on investment can use the CAGR calculator. The Compound Annual Growth Rate formula is used in this application's calculations (CAGR formula). For example, if you have a mutual fund that has appreciated over time, you can use the calculator to determine the rate of return on your investment. The CAGR return calculator will provide you with an annual growth rate that you can compare to a benchmark return.
How to calculate CAGR?
To calculate the compounded annual growth rate on investment, use the CAGR calculation formula and perform the following steps:
- Divide the investment value at the end of the period by the initial value.
- Increase the result to the power of one divided by the tenure of the investment in years.
- Subtract one from the total.
CAGR = (FV / PV) ^ (1 / n) – 1
In the above formula, FV stands for the future value of the investment, PV stands for the present value of the investment, and n stands for the number of years of investment. To understand the calculation better, let's look at a hypothetical situation. Consider you invested Rs.20000 in a mutual fund in 2015. The investment will be worth Rs.35000 in 2020. Using the formula, the CAGR of this mutual fund investment will be-
CAGR= (35000/ 20000) ^ (1/5) – 1 = 11.84%
Here, the results mean the mutual fund investment gave you an average return of 11.84% per annum. You can also calculate the absolute returns on investment using the CAGR calculator. The calculation will be-
Absolute returns= (FV- PV) / PV * 100 = (35000-20000)/ 20000 * 100 = 75%
This means your mutual fund investment gave you an absolute return of 75% over its tenure.
How to calculate CAGR
Benefits Of CAGR Calculator Online
It enables investors to assess the returns in a variety of scenarios. You can use several test cases to evaluate returns in various scenarios.
It is straightforward to use. You only need to enter the initial value, the final deal, and desired investment period, and the online CAGR calculator will take care of the rest.
Assume that you purchased some units of an equity fund earlier and that their value has since increased. You can calculate the gains on your investment using the CAGR online calculator.
It gives you a comprehensive idea of your return on investment.
You can also use the compound annual growth rate calculator to compare stock performance to that of peers or the industry as a whole.
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