Why Most Investment Comparisons Are Misleading — And How CAGR Fixes That
If you have searched "how to compare two investments," "which investment gives better returns," "CAGR comparison," or "how to use CAGR to evaluate performance," you have almost certainly run into the core problem: raw numbers lie. An investment that turned ₹1 lakh into ₹3 lakh sounds better than one that turned ₹1 lakh into ₹2.5 lakh — until you find out the first one took 12 years and the second took 5. The second investment was objectively better on an annual basis, and most surface-level comparisons would have hidden that completely.
CAGR — Compound Annual Growth Rate — is the tool that makes investment comparisons honest. By reducing any investment's performance to a single annualised growth rate, CAGR puts a 3-year fixed deposit, a 7-year equity fund, a real estate holding, and a stock on the exact same scale so you can compare them without being misled by different time periods, different starting amounts, or different absolute gains.
This guide shows you exactly how to use CAGR to compare two or more investments — with real, fully worked examples across the most common asset classes Indian investors deal with.
The Golden Rule of Investment Comparison Using CAGR
Before the examples, one principle that makes everything else clear: never compare absolute returns across different time periods. A 120% return over 10 years is worse than a 80% return over 5 years on an annualised basis. CAGR converts both into their annual equivalent so the comparison is instant and accurate.
The CAGR formula, as a reminder:
CAGR = (Ending Value / Beginning Value) ^ (1 / Years) − 1
Multiply the result by 100 to express as a percentage.
With this formula, any two investments — regardless of amount, time period, or asset class — can be placed side by side and compared on equal terms.
Example 1: Comparing Two Mutual Funds Over Different Time Periods
This is the most common comparison investors need to make, and the most commonly done wrong.
Fund A: ₹1,00,000 invested in January 2018, grew to ₹2,10,000 by January 2025 — a 7-year period.
Fund B: ₹1,00,000 invested in January 2020, grew to ₹1,72,000 by January 2025 — a 5-year period.
Absolute return comparison: Fund A returned 110%, Fund B returned 72%. Looks like Fund A wins — but that ignores the time difference entirely.
CAGR comparison:
Fund A CAGR = (2,10,000 / 1,00,000) ^ (1/7) − 1 = (2.10) ^ (0.1429) − 1 = 11.22% per year
Fund B CAGR = (1,72,000 / 1,00,000) ^ (1/5) − 1 = (1.72) ^ (0.20) − 1 = 11.44% per year
Verdict: Fund B delivered marginally better annualised returns despite the lower absolute gain — because it achieved nearly the same growth rate in two fewer years. A comparison based on absolute returns would have chosen the wrong fund.
Example 2: Equity Mutual Fund vs Fixed Deposit
The classic Indian investor dilemma — equity vs guaranteed returns. CAGR makes this comparison precise instead of emotional.
Equity Mutual Fund: ₹2,00,000 invested in 2019, worth ₹4,15,000 in 2025 — 6 years.
Fixed Deposit: ₹2,00,000 invested in 2019 at 6.5% per annum, compounded quarterly for 6 years.
FD maturity value = ₹2,00,000 × (1 + 0.065/4) ^ (4×6) = ₹2,00,000 × (1.01625) ^ 24 = approximately ₹2,93,000
CAGR comparison:
Equity Fund CAGR = (4,15,000 / 2,00,000) ^ (1/6) − 1 = (2.075) ^ (0.1667) − 1 = 12.97% per year
FD CAGR = (2,93,000 / 2,00,000) ^ (1/6) − 1 = (1.465) ^ (0.1667) − 1 = 6.57% per year
Verdict: The equity fund delivered roughly double the annualised return of the FD over the same period. The trade-off, of course, is risk and volatility — CAGR does not capture the drawdowns the equity investor experienced along the way. But for pure return comparison, the gap is stark and unambiguous.
Example 3: Stock Investment vs Real Estate
Comparing stocks and real estate is notoriously difficult because of different time horizons, different investment sizes, and the illiquid nature of property. CAGR is the only metric that cuts through the noise.
Stock Investment: ₹5,00,000 invested in a blue-chip stock in 2015, worth ₹18,50,000 in 2025 — 10 years.
Real Estate: Property purchased for ₹25,00,000 in 2015, current market value ₹52,00,000 in 2025 — 10 years. (Ignoring rental income and maintenance costs for a clean comparison.)
CAGR comparison:
Stock CAGR = (18,50,000 / 5,00,000) ^ (1/10) − 1 = (3.70) ^ (0.10) − 1 = 13.96% per year
Real Estate CAGR = (52,00,000 / 25,00,000) ^ (1/10) − 1 = (2.08) ^ (0.10) − 1 = 7.62% per year
Verdict: The stock delivered almost double the annual growth rate of the property over the same decade. However, this comparison excludes rental yield from the property and dividend income from the stock, ignores liquidity differences, and does not account for the leverage typically used in real estate. A complete comparison would add these factors — but CAGR gives you the clean capital appreciation baseline to start from.
Example 4: Two Stocks With Different Holding Periods
One of the trickiest comparisons — two stocks you held for different durations, and you want to know which one actually rewarded your capital better per year.
Stock X: Bought at ₹340 in March 2021, sold at ₹890 in March 2025 — held for 4 years.
Stock Y: Bought at ₹120 in March 2019, sold at ₹480 in March 2025 — held for 6 years.
Absolute gain: Stock X = 161.8%, Stock Y = 300%. Stock Y looks like the clear winner.
CAGR comparison:
Stock X CAGR = (890 / 340) ^ (1/4) − 1 = (2.618) ^ (0.25) − 1 = 27.18% per year
Stock Y CAGR = (480 / 120) ^ (1/6) − 1 = (4.00) ^ (0.1667) − 1 = 25.99% per year
Verdict: Stock X delivered a higher annualised return despite the lower absolute percentage gain — because it delivered similar compounding in two fewer years. Your capital worked harder in Stock X per year held. Absolute return comparison would have given you the opposite conclusion.
Example 5: SIP vs Lump Sum in the Same Fund
This comparison requires a critical clarification: CAGR is not the right metric for SIP returns. CAGR assumes a single starting investment — a lump sum. For SIPs where money is invested in monthly instalments, each instalment has a different holding period, so a simple CAGR on the total invested vs total current value understates the actual return. Use XIRR for SIP comparisons.
However, for comparing a lump sum investment in the same fund across two different entry points — say, investing a lump sum at a market peak vs a market trough — CAGR is perfectly valid and reveals the enormous impact entry timing has on annualised returns.
Lump Sum at Market Peak: ₹1,00,000 invested in January 2008 (pre-crash), worth ₹3,80,000 in January 2025 — 17 years.
Lump Sum at Market Low: ₹1,00,000 invested in March 2009 (post-crash bottom), worth ₹6,20,000 in January 2025 — approximately 16 years.
CAGR comparison:
Peak Entry CAGR = (3,80,000 / 1,00,000) ^ (1/17) − 1 = (3.80) ^ (0.0588) − 1 = 8.32% per year
Bottom Entry CAGR = (6,20,000 / 1,00,000) ^ (1/16) − 1 = (6.20) ^ (0.0625) − 1 = 12.47% per year
Verdict: Buying one year later — at the post-crash bottom instead of the pre-crash peak — would have delivered over 4 percentage points more in annualised returns over the entire holding period. Entry timing, even in the same fund, has a dramatic and lasting impact on CAGR.
What CAGR Comparison Does Not Tell You — And What to Do About It
CAGR is powerful but incomplete as a standalone comparison tool. Here is what it misses and how to supplement it:
- Volatility and risk: Two investments with identical CAGR can have completely different risk profiles. Pair CAGR with standard deviation or maximum drawdown to understand the risk taken to achieve those returns.
- Intermediate cash flows: Dividends, rental income, or SIP contributions are not captured in a simple start-to-end CAGR. For income-generating assets, calculate CAGR on total return (capital gain plus reinvested income) or switch to XIRR.
- Tax impact: A 13% CAGR in equity (taxed at 10% LTCG above ₹1 lakh) is not the same as a 13% CAGR in a debt fund or FD (taxed at your income slab rate). Always compare post-tax CAGRs for a fair picture.
- Inflation adjustment: A 10% CAGR during a period of 6% inflation gives a real return of roughly 3.77% — not 10%. For long-term comparisons, real CAGR (nominal CAGR minus inflation rate) matters more than nominal CAGR.
How to Do CAGR Comparisons Instantly — Without Manual Calculation
Computing CAGR manually means calculating nth roots — manageable for one comparison, tedious for several. Our free CAGR Calculator lets you run multiple comparisons in seconds:
- Enter the beginning value, ending value, and number of years for each investment
- Get the CAGR percentage instantly for each
- See a year-by-year projection showing what each investment looked like at its CAGR rate annually
- Works for any asset class — stocks, mutual funds, real estate, FDs, gold, or any metric you want to track
Frequently Asked Questions
Can I use CAGR to compare investments of different sizes?
Yes — this is one of CAGR's biggest strengths. Because it expresses growth as a percentage rate, a ₹10,000 investment and a ₹10,00,000 investment are immediately comparable. The starting amount is irrelevant to the CAGR figure.
Can I compare CAGR across different asset classes like real estate and stocks?
Yes, with caveats. CAGR gives you capital appreciation comparison on equal terms. For a complete picture you need to add income yield (rent vs dividends), liquidity differences, tax treatment, and leverage used — but CAGR is always the right starting point.
What if one investment has a higher CAGR but more risk — which do I choose?
Divide the CAGR by the standard deviation of returns (if available) to get a rough risk-adjusted return. Alternatively, compare Sharpe ratios if you have that data for both investments. Higher CAGR with proportionally higher risk is not necessarily better.
Should I use CAGR or XIRR to compare SIP returns?
Always use XIRR for SIPs. CAGR assumes a single lump-sum investment. SIPs involve multiple cash flows at different points in time — XIRR accounts for this correctly. Use CAGR only for lump-sum comparisons.
Is a higher CAGR always better?
Not always. A higher CAGR achieved with significantly higher volatility, lower liquidity, or worse tax treatment may be less desirable than a slightly lower CAGR from a stable, tax-efficient, liquid instrument — depending on your financial goals and time horizon.
Conclusion
The single biggest mistake investors make when comparing investments is looking at absolute returns without accounting for time. A 200% return over 15 years is worse than a 150% return over 8 years — and without CAGR, most people would never catch that. CAGR reduces every investment to the one number that makes honest comparison possible: the annualised rate of compounding growth. Use the examples in this guide as a template for your own comparisons, and use our free CAGR Calculator to run the numbers instantly — for any two investments, any asset class, any time period.