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Photo: iStock
Photo: iStock

Term of the day: What is CAGR?

CAGR is useful to compare historical returns across investments

Compounded annual growth rate or CAGR measures the return from an investment which grows over a period. Most people consider the absolute return from an investment, which shows the percentage growth in the initial amount invested. CAGR breaks down the actual return from an investment into an annual figure assuming a constant annual return for the period under consideration.

CAGR is useful to compare historical returns across investments. If you remain invested for different periods, comparing returns on an annualised basis helps understand relative performance. It also helps in making an investment choice and helps compare performance across different assets.

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