What Is CAGR and Why It Matters for Mutual Funds
Updated 01 Aug 2026
CAGR, or Compound Annual Growth Rate, is the annualised rate at which an investment would have grown if it compounded steadily over a period. It smooths out the year-to-year ups and downs into a single percentage, making it the fairest way to compare funds over the same horizon.
The formula
CAGR = (Ending NAV / Starting NAV)^(1 / years) − 1. For example, if a fund's NAV grew from ₹100 to ₹200 over 5 years, its CAGR is (200/100)^(1/5) − 1 ≈ 14.87% per year — not 20% per year, because returns compound.
Why CAGR beats absolute returns
- It normalises for time, so a 3-year and a 5-year fund can be compared fairly.
- It reflects compounding, which simple average returns ignore.
- It is less misleading than a single blockbuster year.
What CAGR does not tell you
CAGR hides volatility. Two funds with the same 5-year CAGR can have very different risk profiles. Always pair CAGR with a look at the fund's category, drawdowns, and consistency before investing.
Frequently asked questions
Is a higher CAGR always better?
Not on its own. A higher CAGR means stronger past compounded growth, but you must weigh it against risk, category, and the time period. A small-cap fund's high CAGR comes with much higher volatility than a large-cap fund's.
What is a good CAGR for equity mutual funds in India?
Historically, diversified Indian equity funds have delivered roughly 10–15% CAGR over long periods, though individual funds and periods vary widely. Debt funds typically deliver lower, steadier CAGR of around 6–8%.