CAGR (Compound Annual Growth Rate) represents the steady annual growth rate that would have been required to grow an investment from its beginning value to its ending value over a specific period.
**Formula**: CAGR = (End Value / Start Value)^(1/n) - 1, where n = number of years.
**Example**: If you invest ₹1,00,000 and it grows to ₹1,97,382 in 7 years, the CAGR = (1,97,382/1,00,000)^(1/7) - 1 = approximately 10% per year.
**Why CAGR matters for SIP**: CAGR is the standard metric used to compare mutual fund performance over time. When evaluating a fund's 10-year return of 13%, that 13% is a CAGR figure — meaning the fund grew at an effective compounding rate of 13% annually.
**CAGR vs XIRR**: For SIP investors, XIRR (Extended Internal Rate of Return) is more accurate than CAGR because it accounts for the timing of each SIP installment. Your fund's CAGR and your personal XIRR on the SIP can differ based on when exactly you invested each installment.
**Typical CAGR benchmarks**: Large cap equity funds: 11–13% (10Y), Nifty 50 Index: ~13% (since inception), PPF: 7.1% (current), Bank FD: 6.5–7.5% (current).