CAGR – Compound Annual Growth Rate
Compound Annual Growth Rate is the way to calculate the annual return for an investment over a certain period. e.g., Mutual fund or Stock or Business.
Beginning Balance = Invested unit price of Mutual fund or Stock
Ending Balance = Current unit price of that Mutual fund or Stock
N = Number of years
Let see how to CAGR is calculated for Mutual Fund and you can use this formula in google sheet.
Example 1: 10 rupees per unit at the time of investing and after one year unit value is increases to 14 rupees per unit.
Beginning balance = 10, Ending balance = 14 & Number of years = 1
= (14/10)^(1/1)-1= 0.4*100= 40
Example 2: 10 rupees per unit at the time of investing and after two year unit value is increases to 14 rupees per unit.
Beginning balance = 10, Ending balance = 14 & Number of years = 2
= (14/10)^(1/2)-1= 0.1832*100= 18.32
You can use this link to calculate CAGR online: CAGR Calculator – Compound Annual Growth Rate (CAGR) Calculator Online (groww.in).
Check with Mutual Fund
Fund Name: SBI Banking & Financial Services Fund Direct – Growth
Launch Date: 26 Feb 2015
Initial price per unit at fund launched was ₹10
Now price per unit (09 Jan 2021) is : ₹23.069
Number of years of this fund from launch date: 5 years, 10 months, now we consider 6 years for easy understanding
CAGR % of this fund is 14.95%
CAGR is help to find the good mutual fund in the past history and it helps to make decision stay invested in that fund or not over the period.
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