Compound annual growth rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each year of the investment’s lifespan. The CAGR isn’t a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments. For example, if a stock’s 5Y CAGR is 20%, it implies if one had invested 100 Rs in the stock 5 years back and never withdrawn any amount of gains or losses, they would have made 100*(1 + 20/100)^5 = 248.832