CAGR is refereed as mean annual growth of investment over the specified time duration, and the interest under CAGR is calculated with CAGR Calculator which to be compound per year and it takes time values of money into consideration. The return generated on fixed amount can be shown at the end of the year.
The main term in calculating the CAGR value, is the beginning value and ending value followed by the number of years, and these values are combined for calculated to get the fixed return on investment made. CAGR calculation will let you know about gain over the initial investment made.
This let you decide the investment made from the start to the end of period you have composed, and this lets you describe the value from start of investment and end of investment with giving the percentage of return, and the compound interest calculated over a tenure will be included at the end of return gained.
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Individual can also calculate the growth of their mutual funds’ values, by checking the calculation under CAGR for some interval of period. Having a good lump sum amount the using CAGR calculator to invest in Funds will be a good idea. CAGR calculation is far different than the NCS calculator or SWP calculator, where risk coverage is quite higher the CAGR calculation.
How to Calculate CAGR Value
The calculator used for CAGR is very easy as it just requires few values which can be easily put into the formula. There is consideration where one can use CAGR calculator and get report of their return.
If suppose you have investment a unit of amount in Mutual Funds and later on the Value of Funds has been increases. Using CAGR formula investor will get exact value of return. Amount calculated on Fund will include the compound interested gained per year, as varied by the Mutual Funds company.
Investor can also calculate compound interest generated on the funds bought and total value for every year. You should use the first value with the end value of that particular year, to calculate individual increase amount per year
IF you’re involved in Mutual Funds, then using CAGR calculator will be best as to draw a graph of your funds’ performance. The growth and downfall of the value using CAGR calculation will allow investors to maintain the stand. This graph will let you decide how long the investment on this particular fund can be locked.
Restrictions under CAGR Calculator
Everything has some pros and cons, so does CAGR calculator. We would suggest you to avoid this particular line while using this calculator, so that your calculated value will remain constant. One not considered this value might lead to wrong investment and this miss calculation will through them in debt.
Investor must not consider the aspect of volatility, as the CAGR consider growth of income as over duration of time. Any change in certain internal will directly affect the final value, with having very less risk coverage.
Amount invested through CAGR calculation is only good, if the sum is large. Lump sum amount invested can be calculated, as formula of CAGR strictly takes initial amount deposited to calculated later interest gained
CAGR calculation will not account for risk in the investment, as mutual funds percent for certain year might get high or low, that will directly change your return value. This isn’t like easy investment which has risk adjustment returns than risk inherent return.
Investment made even after the percent of CAGR calculation has been seen to decrease, will lead to disclose your Funds value nearly to zero. That will end up to have no return on the investment made, so thoroughly following the result of CAGR calculation for better returns is important.
CAGR Calculation Formula
Here we bring you an easy formula that all online tools use to calculate CAGR. The end result of CAGR Calculation will be percent growth in initial investment calculated upon present/end value. The valuation will be easy as you have only two begin and value and end value need to insert here. Have a look at the formula and its description given below to make your understanding clear.
CAGR = (EV / SV) 1 / n – 1
- n = Number of Investment Periods (months or years)
- EV = Investments ending value (Value in Amount Rs)
- SV = Investments Starting Value (Value in Amount Rs)
Example: Here we bring you a short example with some values, that might let you imagine how exactly the CAGR value is calcite. This formula is simple with simple question that can performed by anyone.
If we assume to have investments starting value as Rs1000, which is called as the beginning value of your investment made and which grows to Rs10, 000 in next 3 years, which is termed as the end value with respective to total number of years as tenure. Once this value are inserted in the formula then Value of CAGR will be as shown below.
- Beginning Value EV= 1000
- End Value SV = 10000
- Number of Years n = 3
CAGR Formula with example value is
- CAGR = (10000/1000)1/3 -1
- CAGR = 1.154
Thus, the CAGR percentage is 1.154 *100 = 115.4%, where it clearly describes the growth in increase in amount invested and amount that is accumulated in your account as gained. The value in increase percent might also fall under 100%, which shows as the rate of increase in your investment has gradually decreases. Investor might note this value and quickly respond to mutual funds as then suggested.
Hope, that you have understood the way of using the CAGR calculator to calculate your percent increase in investment. As suggested use CAGR calculation if you have got good lump sum amount with low risk on it.
This is for sure a risk inherent investment, with high rate of return that is far better than other investment schemes. It is best suggested to have a good suggestion from investors group, if you’re planning to invest some good sum of amount in any mutual funds under any scheme.