FAQs

• What is the significance of CAGR in investment analysis?

  CAGR is a useful metric for evaluating the performance of investments over time. It provides a standardized measure of growth that accounts for the effect of compounding, making it easier to compare the performance of different investments. By calculating the CAGR of an investment, investors can assess its annual growth rate and make informed decisions about its potential returns.

• What is a good CAGR for investments?

  A good CAGR for investments depends on the investor's financial goals, risk tolerance, and investment horizon. Generally, a CAGR that exceeds the rate of inflation and provides a positive real return is considered good. However, the ideal CAGR may vary depending on the type of investment, market conditions, and the investor's individual circumstances.

• What is the difference between CAGR and absolute return?

  CAGR and absolute return are two different metrics used to evaluate the performance of investments. Absolute return measures the total return generated by an investment over a specific period, expressed as a percentage. CAGR, on the other hand, calculates the annual growth rate of an investment over a specified time frame, accounting for the effect of compounding. While absolute return provides a snapshot of the total return generated by an investment, CAGR offers a standardized measure of growth that accounts for the impact of compounding over time.

• How can investors use CAGR to evaluate mutual fund performance?

  Investors can use CAGR to evaluate the performance of mutual funds over time. By calculating the CAGR of a mutual fund, investors can assess its annual growth rate and compare it to other funds or benchmarks. CAGR provides a standardized measure of growth that accounts for the effect of compounding, making it easier to evaluate the performance of mutual funds and make informed investment decisions.