What is the difference between absolute return and CAGR?

Absolute return is the total percentage gain on an investment regardless of time period (e.g. 80% over 6 years). CAGR (Compound Annual Growth Rate) annualises that gain, showing the equivalent steady annual rate (e.g. 80% over 6 years = 10.4% CAGR per year). CAGR is essential for fair comparison because it accounts for the holding period.

Why is CAGR a better metric than absolute return for comparing investments?

Absolute return is misleading when comparing investments held for different periods. A fund that returned 150% over 10 years (10.7% CAGR) is actually underperforming one that returned 80% over 5 years (12.5% CAGR), even though 150% sounds much better. CAGR puts all investments on the same annual scale.

How do I calculate CAGR from absolute return?

CAGR = (1 + Absolute Return ÷ 100)^(1 ÷ Years) − 1. For example, 100% absolute return over 7 years: CAGR = (1 + 1)^(1/7) − 1 = 2^0.143 − 1 = 10.4%. Our calculator does this instantly for any input.

Is CAGR the same as XIRR for mutual funds?

No. CAGR assumes a single lump-sum investment at the start and one redemption at the end. XIRR (Extended Internal Rate of Return) handles multiple cash flows at different dates — such as SIPs or multiple purchases and redemptions. CAGR is appropriate for a single lump-sum investment; XIRR is more accurate for SIPs.

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Absolute Return to CAGR Calculator

Convert absolute returns to Compound Annual Growth Rate (CAGR) for better investment comparison

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Absolute Return

CAGR