{"id":24873,"date":"2022-02-10T07:02:13","date_gmt":"2022-02-10T07:02:13","guid":{"rendered":"https:\/\/www.tatacapital.com\/blog\/?p=24873"},"modified":"2024-05-10T11:00:21","modified_gmt":"2024-05-10T11:00:21","slug":"everything-about-compound-annual-growth-rate-in-mutual-funds","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/moneyfy\/mutual-funds\/everything-about-compound-annual-growth-rate-in-mutual-funds\/","title":{"rendered":"Everything About Compound Annual Growth Rate in Mutual Funds"},"content":{"rendered":"\n

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When you invest your money in a fixed deposit, you figure out how much you will invest, look for the best interest rates, and estimate your returns over a tenure. After all, it helps to know how much you will gain before locking your money in. So, why shouldn’t you be as well-informed while picking a mutual fund? <\/p>\n\n\n\n

Mutual funds are heavily dependent on market fluctuations, so it isn’t as straightforward to anticipate their returns as you can with fixed deposits. But don’t worry! You can estimate a mutual fund’s returns using a metric called Compound Annual Growth Rate (CAGR).<\/p>\n\n\n\n

If you have ever browsed mutual fund schemes, you will notice ‘CAGR’ written on your screen, along with a percentage value. What does this term mean to you, as an investor? Here is everything you need to know.<\/p>\n\n\n\n

What is CAGR, meaning, in a mutual fund?<\/strong><\/h2>\n\n\n\n

CAGR indicates how your investment’s value grows over a period of time. In other words, it shows you approximately how much your investment has earned each year over a given time interval.<\/p>\n\n\n\n

CAGR is not the same as the annual growth rate of your investment. The annual growth rate is a simplistic, absolute value that indicates your mutual fund’s performance over a year.<\/p>\n\n\n\n

On the other hand, CAGR depends on the total investment period. While calculating a CAGR, it is assumed that the same growth rate was compounded each year for the entire duration of your investment.<\/p>\n\n\n\n

To understand this better, let us look at how CAGR is calculated. Later in the article, we will also compare CAGR and annual growth rates.<\/p>\n\n\n\n

Additional Read – <\/strong>How are Mutual Funds Returns Calculated?<\/a><\/p>\n\n\n\n

How to calculate CAGR?<\/strong><\/h2>\n\n\n\n

The C<\/strong>ompound Annual Growth Rate (CAGR) formula is as follows:<\/p>\n\n\n\n

CAGR= (final value\/initial value)^(1\/n)-1<\/p>\n\n\n\n

Here,<\/p>\n\n\n\n