India has a more positive outlook on stock markets than a decade ago. People readily invest in mutual funds and stocks. As per 2023-24 data, India’s 6% population participates in stock markets, and you must be one of them.
But have you wondered how much profit you generate on your SIPs and investments?
Are you even making money on your investments?
Most of the people who actively participate in stock markets lose their money due to relying on tips and recommendations. They miss out on carrying out research themselves and look for quick money, creating solutions that are often too risky or fraudulent. So, how can you check out your returns and be safe?
One of the simplest ways to find out if you are making money is to check your portfolio CAGR. CAGR stands for Compounded Annual Growth Rate. This value tells you by what percentage your portfolio has been growing annually.
Let us explain to you by an example:
Ayushman invested ₹10,000 in an Index Fund. One year later, his investment grew to ₹11,000. This implies his portfolio grew with a CAGR of 10%. If in the following year, his investment grew again by 10%, he would have a portfolio of ₹12,100.
How to Calculate Compound Annual Growth Rate (CAGR)
EV=Ending value
BV=Beginning value
n=Number of years
To calculate the CAGR for your investment:
Step 1. You have to divide the value of your investment at the end or current value by its value at the beginning.
Step 2. Raise the result to an exponent of one divided by the number of years during which you remained invested.
Step 3. Subtract one from the result of Step 2.
Step 4. Multiply by 100 to convert the answer into a percentage.
Another easy way to calculate CAGR is by using our calculator given below:
<Calculator>
However, some assumptions need to be made while calculating CAGR.
- All your SIPs are of the same numerical value. (Inflation-adjusted or incremental values in CAGR will not work)
- You are investing throughout the tenure without skipping any month/ investment period.
If your calculation involves these two assumptions, you can easily calculate investment CAGR. On the other hand, if there are cases of these two exceptions happening, then instead of CAGR, one must calculate the XIRR. If you want us to create an XIRR calculator for you, do let us know in the comments on this blog.
Portfolio management is a key aspect towards building long-term wealth. Just like investing in fundamentally sound stocks, it is equally important to monitor your investments and rebalance your portfolio with your highest investment in the most performing asset/stock. To learn more about long-term wealth creation, check out our stock market free webinar.
