Understanding CAGR

“Compound interest is the eighth wonder of the world. He who understands it earns it and he who doesn’t pays it.” 

– Albert Einstein

What is CAGR?

When an asset generates earnings which are then reinvested to generate further added earnings, it is referred to as compounded growth. Other than interest, this concept has proven to be a great tool in understanding and comparing equity as well.

Compound Annual Growth Rate, or simply CAGR, is a representational figure indicative of annualized average returns. It is essentially a number that describes the rate at which an investment has grown, given it has grown at the same rate every year, and the profits were reinvested at the end of each year. 

CAGR is used to measure and compare the past performance of investments or speculate their future returns. It gives the most accurate and reliable results to calculate the returns of assets, portfolio, and other securities whose values can fluctuate with time.

The CAGR calculation considers 3 things – the investment value you start with, the number of years in between, and the closing value at the end of these years.

Let’s say you made an investment of ₹100 in January, 2010 in a certain instrument. 
After 10 years, in December 2019, your investments were worth around ₹311. This helps to conclude that the investment gave you an average return of 12% every year from 2010-19. Thus, the CAGR in this case is 12%.

Simply put, CAGR = (End Value/Beginning Value)^(1/Years) – 1

CAGR on smallcases

The CAGR calculations on our platform are calculated based only on live data. To facilitate a better understanding, we do not include any backtested/simulated data in any CAGR calculation.

CAGR plays a key role when comparing smallcases and making investment decisions. So, we’ve added a time label to make it more contextual. 

This time-label reflects the period over which the CAGR for that particular smallcase is calculated. Not only does this help you compare your smallcases more accurately, but also ensures that you’re entirely informed about how the returns of your smallcases have been calculated. For smallcases that have been live for less than a year, the CAGR will show absolute performance of the smallcase during this period. For periods greater than a year, it shows calculations using the regular CAGR formula.

To aid your decision making process further, we’ve ensured you can choose to sort your smallcases based on their 1M, 6M, 1Y, 3Y, and 5Y returns on the Discover page.

When you’re checking out all smallcases, the ones that have been live for over a year are shown to you by default. 

Should you wish to see the smallcases that have been live for less than a year, you can simply select the include new smallcases filter to see all smallcases, irrespective of their date of launch.