What is CAGR?

Compounded Annual Growth Rate or CAGR is the annualized rate of return on your investments. Market linked investments like mutual funds may witness different rate of returns in each calendar year over a long investment tenure. With CAGR, investors can gauge the annualized rate of growth of the invested corpus over the period of investment. In other words, CAGR is the average annual rate of growth in the value of the corpus over a period. The CAGR return also helps compare the performance of the investment with a benchmark index over the same period.

You may have different financial goals over different time periods. Franklin Templeton's CAGR calculator can help you understand the required average annual rate of return on your investments over a given period. This may help you in your asset allocation decision to meet your financial goals. Longer the investment horizon for a financial goal, lower is the required CAGR return   to reach the required value of corpus. The CAGR calculator illustrates the growth potential of investments with the power of compounding.

How does Compounded Annual Growth Rate Calculator (CAGR Calculator) work?

The CAGR calculator helps investors understand the required annualized rate of return on an investment in order to create the required corpus over the investment period. The CAGR calculator uses three inputs—initial value of investment, required value of corpus, and investment horizon. It uses the formula:

((Ending Value of Corpus / Principal amount invested) ^ (1 / Years)) – 1.

This formula provides the required CAGR return in percentage on your investment to meet your financial goal within the specified investment horizon. The required annualized rate of return may help you plan your investments with the appropriate asset allocation.

Here is an illustration to help you understand how the CAGR calculator can be helpful in your investment decision making. For example, if you have Rs 1 lakh to invest and seek to create a corpus of Rs 10 lakhs over the next 20 years, the CAGR return would be 12%. Knowing this may be helpful in deciding the asset allocation which may help you achieve the required CAGR  over the investment horizon.

Another way the CAGR calculator can be useful is that it can help you calculate the CAGR return of your existing mutual fund investments. If you invested Rs 1 lakh 5 years ago and the value of the investment corpus is Rs 1.5 lakhs today, the calculator can help you calculate the CAGR returns which is 8.45% CAGR*. This can be helpful in comparing the performance of your investments with other investment alternatives and benchmark indices.

*For illustration purposes only and should not be construed as investment advice.

How to use the Franklin Templeton CAGR calculator?

Here is a step by step guide for using Franklin Templeton’s CAGR calculator:

To use this calculator, you require three details – the initial investment value, the value of the required corpus, and the investment horizon in years.

• Input the principal investment value – This is the initial lumpsum investment made at the start of the investment period.
• Input the value of the final corpus – This is the value you required to meet your financial goal at the end of the investment period or the current value of your past investment.
• Input investment horizon – This is the number of years within which you seek to meet your financial goal or the period for which you have remained invested.

This compounded annual growth rate calculator can simplify financial goal tracking by providing quick and reliable results.

Benefits of using this tool include ease of access, CAGR estimation  , and assistance in visualising the potential long-term investment performance.

Advantages of using a CAGR calculator

A CAGR calculator assists in enabling better investment decision-making by simplifying complex data.

The following are some key advantages:

• Uses the Compounded Annualized Growth Rate formula to provide insights.
• Helps to decide the appropriate asset allocation.
• Saves time by automating calculations.
• Helps plan for long term financial goals like retirement planning, purchase of house or planning for higher education of children.

While the CAGR serves as a useful measure, it is crucial to note that it does not factor in any investment risk.