What is CAGR in Mutual Fund?
- An investment’s yearly growth rate can be calculated using the Compounded Annual Growth Rate, or CAGR. You must take compounding—the process of reinvested profits or earned interest—into account when examining what CAGR in mutual funds means.
- For example, a Rs 1,000 initial investment yields a 10% return in the first year; the Rs 100 reinvested profit becomes the foundation for further growth.
- Because of the compounding impact, the CAGR becomes a powerful tool for determining the return on mutual fund assets over time as this cycle continues.
What Is the Process of CAGR?
- In addition to smoothing out swings, CAGR reduces complicated investment performance to a single percentage. An investment’s genuine performance is more accurately represented by calculating the mean annual growth rate of the investment over a certain period of time.
- A better idea of how a mutual fund investment would have expanded if it had grown at a consistent rate each year is provided by CAGR, which takes the compounding impact into account.
- In order to help investors make better decisions regarding their portfolios, this facilitates comparisons across various mutual fund investment possibilities.