CAGR (Compound Annual Growth Rate) is an acronym for Compound Annual Growth Rate, which means it is the yearly rate of return that is required for an investment to grow from its initial valueto its final value within that particular period. CAGR is generally calculated with the idea of the profits accumulated to be reinvested at the end of its period. The use of CAGR is to understand compounding the investment will yield over a period of a few years and comes in handy when comparing different investments.
There is a vast difference between simple growth rate and compound annual growth rate, as the simple growth rate formula is used to determine the absolute percentage increase of a value within a particular period of time,. Whereas, compound annual growth rate reflects the rate of annual return that investments yielded over a period of 2-3 years or more . Here, the time horizon of the investment doesn't matter, as it enables you to compare investments with different time periods.
There are specific formulas to calculate the CAGR, but there are many tools available in the market like the ET MONEY CAGR Calculator, which helps you calculate the figures instead of going through complicated mathematical calculations manually.
CAGR calculator is one of the most accurate ways to calculate the return on an investment that fluctuates during the investment period, as it allows investors to compare investments with different time horizons. It is one of the most effective tools which helps in comparing profits from a particular investment with risk free instruments. However, one should take note that CAGR does not take into account the investment risk, as it doesn't showcase the volatility of the investment value as it always suggests that the growth rate is constant.
This article is generated and published by FPJ focus team. You can get in touch with them on fpjfocus@fpj.co.in
.jpg)
