uTrade AlgosNo, CAGR and annualised return are not the same thing. While both CAGR and annualised return express investment growth on a yearly basis, they differ in their calculation methods and the information they convey.
Share India enhances financial understanding by emphasising CAGR, offering clarity on long-term investment performance through the lens of compounding. This focus empowers investors to make informed decisions based on a true growth rate analysis, while simultaneously fostering financial literacy by elucidating the distinctions between various return calculations.
CAGR vs. Annualised Return:
1. CAGR (Compound Annual Growth Rate):
- Accounts for the effects of compounding, showing the smoothed, constant annual growth rate over the investment period.
- Provides a more accurate picture of long-term investment performance, especially when there are fluctuations in returns.
- Uses the formula: CAGR = (EV/BV)^(1/n) – 1.
2. Annualised Return (Simple):
- Calculates the average annual return without considering compounding.
- It is simply the total gain or loss divided by the number of years.
- Can be misleading if there are significant fluctuations in returns.
Key Difference:
The core difference lies in the consideration of compounding. CAGR reflects the average annual growth rate if the investment had grown at a constant rate each year, assuming reinvestment of profits. Standard annualised return simply averages the total return over the investment period.
You can find Share India’s CAGR Calculator here:
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