How ROI and CAGR are calculated

ROI measures the total percentage gain on an investment across its whole holding period. It answers a simple question — how much did this grow — but it says nothing about how long that took, which makes it useless for comparing investments of different durations.

CAGR fixes that by expressing growth as a constant annual rate. A 100% ROI over two years and a 100% ROI over ten years look identical as ROI, but their CAGRs are 41.4% and 7.2% respectively. For any comparison, CAGR is the honest figure.

ROI% = (Final - Initial) / Initial x 100 CAGR = (Final / Initial)^(1/n) - 1
Initial
amount invested at the start
Final
value at the end of the period
n
holding period in years

Worked example

An investment of 1,00,000 that grows to 2,50,000 over 6 years.

InputValue
Initial investment1,00,000
Final value2,50,000
Holding period6 years
Absolute gain1,50,000
ROI150%
CAGR16.50%

The 150% ROI is the headline number, but 16.50% is the figure to compare against other investments — it is the steady annual rate that would produce the same result over the same six years.

How to use this calculator

  1. Enter the amount originally invested, including any purchase costs.
  2. Enter the current or final value, net of exit costs.
  3. Enter the holding period in years to get CAGR alongside ROI.
  4. Use CAGR whenever you are comparing investments held for different lengths of time.
  5. Check the CAGR against inflation to judge real growth.

Frequently asked questions

When should I use ROI instead of CAGR?
ROI is fine for a single completed project or a one-off comparison over an identical period. As soon as durations differ, ROI becomes misleading and CAGR is the correct measure.
Does CAGR mean my investment grew that much every year?
No. CAGR is a smoothed average. The actual path may have included sharp gains and losses; CAGR only describes the constant rate that would have produced the same start-to-finish result.
Should fees and taxes be included?
For a realistic figure, yes. Use the net amount you actually paid as the initial value and the net amount you actually received as the final value. Gross returns systematically overstate what you kept.
Can ROI be negative?
Yes — whenever the final value is below the initial investment. CAGR can be negative too, representing a constant annual rate of decline.
How does CAGR handle additional contributions?
It does not. CAGR assumes a single amount in at the start and a single amount out at the end. For investments with ongoing contributions, such as a SIP, use an XIRR-style calculation instead.

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This calculator is an educational tool. Results are estimates based on the inputs you provide and do not constitute financial advice. Verify figures with your bank, broker or a qualified advisor before acting on them.