CAGR vs Absolute Return – What Is the Difference?

CAGR vs Absolute Return — Which Should You Use?

Absolute Return

Simple percentage gain from start to end. If you invested ₹1 lakh and got back ₹1.5 lakh, absolute return = 50%. Does NOT consider time.

CAGR (Compound Annual Growth Rate)

Annualized return that accounts for time. ₹1 lakh becoming ₹1.5 lakh in 3 years = CAGR of 14.47%. In 5 years = CAGR of 8.45%.

When to Use Which

Absolute Return: For investments less than 1 year.

CAGR: For comparing investments over different time periods. Always use CAGR when someone claims high returns — ask over how many years.

Example

Fund A: 100% return in 10 years (CAGR = 7.18%). Fund B: 60% return in 4 years (CAGR = 12.47%). Fund B is actually better despite lower absolute return!