CAGR, the compound annual growth rate, is the steady yearly return that would turn a starting value into an ending value over a period.
CAGR turns a gain over several years into a single yearly rate. It assumes the money grew at the same rate every year, with each year's growth added to the base for the next.
To work it out, divide the ending value by the starting value, raise the result to the power of one divided by the number of years, and subtract one.
For example, ₹1 lakh that grows to ₹2 lakh in 6 years has doubled. The CAGR is about 12.2% a year. Dividing the 100% gain by 6 would give 16.7%, which overstates the yearly rate because it ignores compounding.
Fund returns for periods longer than a year are usually shown as CAGR, often labelled "annualised".
CAGR has two limits:
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