CAGRCAGR
Compound annual growth rate — the smoothed annual return over a period. Right for a single lumpsum, misleading for a SIP.
Why you care
CAGR turns "my money grew from X to Y over N years" into a single smoothed annual rate you can compare across funds. It's the standard way point-to-point returns are quoted. The catch: it assumes one lump of money invested at the start, so it quietly misdescribes anyone who invested in instalments.
Run the numbers
₹1 lakh becomes ₹2 lakh in 6 years. The CAGR is (2)^(1/6) − 1 = 12.25% (illustrative). Note it says nothing about the path — the fund could have doubled smoothly or crashed and recovered. CAGR only cares about the start value, the end value, and the years between.
Where this goes
CAGR is the right tool for a one-shot investment. The moment your money went in as a monthly SIP, each instalment had a different duration, and CAGR breaks — you need XIRR instead. And judging a fund on a single start-to-end CAGR invites cherry-picked dates, which is what rolling returns fix.
Why you care
CAGR (compound annual growth rate) is the constant annual rate that would take an investment from its starting value to its ending value over a given period. It's a smoothing device: it collapses a messy, up-and-down journey into one clean "as if it grew this steadily every year" number, which is exactly why it's the standard way funds quote point-to-point performance.
Two things make CAGR worth understanding rather than just reading off a factsheet. First, it deliberately ignores the path — a fund that limped along and then surged has the same CAGR as one that rose smoothly, if they started and ended at the same values. Second, and more important for a real investor, CAGR assumes a single investment made at the start. That's true for a lumpsum. It's false for a SIP, where your January rupee has been invested for twelve months but your December rupee for one, so there's no single "N years" to compound over. Quote a SIP's return as a CAGR and you'll usually overstate or understate it, sometimes badly.
Run the numbers
You invest ₹1,00,000 as a lumpsum and six years later it's worth ₹2,00,000 (illustrative).
- Total growth: 2×, i.e. +100%.
- CAGR = (2,00,000 ÷ 1,00,000)^(1/6) − 1 = (2)^(1/6) − 1 = 12.25% a year.
So "the money doubled in six years" and "the fund compounded at 12.25% a year" are the same fact stated two ways. Now change one thing: suppose you didn't invest ₹1 lakh at the start but ₹1,667 a month for six years (also ₹1.2 lakh in, similar corpus out). There is no single start date to raise to the power of one-sixth, because most of your money wasn't invested for anything like six years. CAGR has no honest way to describe that. This is the exact gap XIRR exists to fill.
Where this goes
CAGR is the correct measure for a lumpsum and the wrong one for a SIP, which hands you straight to XIRR, the timing-aware version. It also has a subtler weakness: a single point-to-point CAGR depends entirely on the two dates you picked, so a fund can look brilliant or mediocre depending on where you start the clock. Rolling returns answer that by computing CAGR across hundreds of overlapping windows instead of one convenient pair of dates.