CAGR Calculator

What is a CAGR Calculator?

The CAGR or Compounded Annual Growth Rate is a financial calculator used to calculate the rate at which an investment has grown over the duration of investment, assuming that the gains were reinvested each year. It refers to the returns earned on the initial investment along with all the dividends or other profits reinvested, which creates a snowball effect and allows an investor to build significant wealth using the power of compounding.

To use the Pocketful’s CAGR calculator, one needs to enter the following inputs:

1. Initial Investment 
2. Final Investment
3. Duration of Investment

The CAGR calculator gives output in the form of

1. Total Investment
2. Returns or Total Profits
3. CAGR

How Can CAGR Calculator Help You?

A CAGR calculator helps you in the following manner:

• Comparison: It helps you in comparing various investment options based on their historical returns, and allows you to choose the best among them based on your risk profile.
• Setting Goals: The CAGR calculator allows you to estimate the expected returns and adjust other inputs to match your financial goal.
• Convenience: One can avoid doing manual calculations by using Pocketful’s CAGR calculator, which provides accurate results quickly.

How Does a CAGR Calculator Work?

A CAGR calculator helps an individual calculate the CAGR on their investment.

Here is an explanation of how it works:

1. Input Data: The first step in calculating the CAGR of an investment is to input the data, such as initial investment amount, final investment amount and duration of investment.
2. Using Formula: The Pocketful’s CAGR Calculator uses the CAGR formula to calculate the annualised return.
3. Result: Once the formula is applied successfully, you will get the desired result in the form of a percentage.

Formula to Calculate CAGR

The formula to calculate the CAGR or Compounded Annual Growth Rate is as follows:

CAGR = {(Final Investment /Initial Investment)^(1/n)-1}*100

where,

• Final Investment = Ending Value 
• Initial Investment = Beginning Value
• n = Duration of Investment in years

Example of CAGR Calculation

Let’s understand the CAGR calculation with an example:

Suppose Mr A invested ₹1,00,000 in a mutual fund scheme and it grew to ₹2,00,000 in five years.

Now let’s calculate the CAGR of this investment using the CAGR formula.

CAGR = {(Final Investment /Initial Investment)^(1/n)-1}*100

In this case, the following are the values:

Initial Investment = ₹1,00,000

Final Investment = ₹2,00,000

Duration of Investment = 5

Now, putting the value in the above formula:

CAGR = {(2,00,000/1,00,000)^(⅕) – 1} * 100

CAGR = 14.87%

Returns = Final Investment – Initial Investment = ₹2,00,000 – ₹1,00,000 = ₹1,00,000

Hence, we can say the investment of ₹1,00,000 grew to ₹2,00,000 at a rate of 14.87% per annum for 5 years.

How to Use Pocketful’s CAGR Calculator?

One can easily use the Pocketful’s CAGR calculator to calculate the annualised returns on their investment by following the steps mentioned below:

1. Open Pocketful’s home page and scroll to the bottom of it, where you will find a section named Tools; click on it.
2. On the next page of financial tools, you will find a tab named Financial Calculators; click on it.
3. There you can see a calculator named “CAGR”; click on it.
4. You are required to enter the details such as amount of initial investment, final investment and duration of investment.
5. As you enter the details, the CAGR calculator instantly calculates the CAGR, and will show you the results.

Benefits of Using the CAGR Calculation

The significant benefits of using the CAGR calculator are as follows:

1. Financial Goals: CAGR calculator helps you in setting realistic financial goals and invest accordingly. 
2. Portfolio Review: You can use the CAGR calculator to compare the returns of different investment options with their benchmark to assess its performance.
3. Trend Analysis: Businesses generally use CAGR metric to calculate the growth of sales, revenue, and profit, etc.