BASICS
Basics
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What is CAGR? — How to Calculate and Compare Mutual Fund Returns
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TopFund Research
TopFund
5 min read
12 Jul 2026
CAGR (Compound Annual Growth Rate) is the standard way to compare mutual fund returns. Learn the formula, examples, and why 1-year returns can be misleading.
CAGR stands for Compound Annual Growth Rate. It tells you the rate at which your investment grew each year on average. All mutual fund returns are shown as CAGR.
CAGR Formula
CAGR = (Ending Value / Beginning Value) ^ (1/Years) – 1
Example: You invested ₹1,00,000 in 2021. In 2026 (5 years), it's worth ₹1,76,234. CAGR = (1,76,234/1,00,000)^(1/5) – 1 = 12%.
Why Not Use Absolute Returns?
A fund that returns 50% in 2 years sounds great. But another fund that returns 50% in 10 years is much worse. CAGR normalizes this by converting to an annual equivalent.
1Y vs 3Y vs 5Y CAGR — What to Look At
- 1Y CAGR — Short-term, highly influenced by market conditions. Not reliable.
- 3Y CAGR — Covers a full market cycle. Good for comparison.
- 5Y CAGR — Best indicator of consistent performance. Most reliable.
- Since Inception — Useful for older funds to see long-term track record.
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