How is CAGR different from cumulative growth?

CAGR (Compound Annual Growth Rate) and cumulative growth measure the return on investment over time but in different ways.

CAGR shows an investment's annualised gain or loss over a set period. It factors in the effect of compounding to show the yearly growth rate over the investment timeframe. For example, if an investment grows from ₹1,00,000 to ₹1,61,051 in 3 years, the CAGR is 15%.

On the other hand, cumulative growth calculates the total growth over the entire investment period. It is simply the difference between the starting and ending values. For the same example above, the cumulative growth is ₹61,051 or 61.05% over 3 years.

While CAGR shows returns to account for compounding, cumulative growth shows irregular spikes depending on yearly gains and losses. CAGR provides a more normalised annual growth measure for comparing investments over time rather than cumulative growth's total growth view. Use an online CAGR calculator for quick results.