SIP (Systematic Investment Plan) is a popular way to invest money every month in mutual funds. But to know if your SIP is doing well, you need to understand CAGR (Compound Annual Growth Rate).

What is SIP CAGR?

SIP CAGR tells you how much money your SIP investments have grown each year on average. It’s different from just looking at total profit because it shows the yearly growth rate.

Think of it this way: If you put ₹1,000 every month in a SIP for 3 years, CAGR tells you how much your money grew each year on average.

Why is SIP CAGR Different from Regular CAGR?

Regular CAGR works when you invest all money at once. But in SIP, you invest small amounts every month. Each monthly investment has a different time period, so the calculation becomes a bit complex.

Simple SIP CAGR Formula

The basic idea is:

CAGR = How much your money grew each year on average

The exact formula uses something called XIRR, but don’t worry – we’ll show you easy ways to calculate it.

Why SIP CAGR is Important for You

1. Compare Different Funds

CAGR helps you see which mutual fund is better. You can compare funds fairly, even if you invested for different time periods.

2. Set Real Expectations

Instead of getting excited about big total profits, CAGR shows you the real yearly growth. This helps you plan better.

3. Make Smart Choices

CAGR helps you decide whether to continue your SIP, increase the amount, or switch to a different fund.

4. Plan Your Goals

You can figure out how much to invest each month to reach your money goals. Use our CAGR Calculator for SIP to test different amounts and see what works best.

How to Calculate CAGR for SIP Investments (Simple Steps)

Let’s learn how to find out your SIP’s CAGR with easy examples.

Easy Example to Understand

Your SIP Details:

• You invest: ₹5,000 every month
• Time period: 3 years (36 months)
• Your money today: ₹2,10,000
• Total money you put in: ₹1,80,000

Method 1: Quick Calculation

For a rough idea, use this simple formula:

CAGR = ((Today's Value ÷ Total Invested)^(1/Years)) - 1
CAGR = ((2,10,000 ÷ 1,80,000)^(1/3)) - 1
CAGR = About 5.3% per year

Note: This gives a rough number. The real CAGR is higher because it considers when you invested each month.

Method 2: Using Excel or Google Sheets (More Accurate)

This method gives you the exact CAGR:

Step 1: Make a Simple Table

Date        Money In/Out
Jan 2021    -5,000 (you invested)
Feb 2021    -5,000 (you invested)
Mar 2021    -5,000 (you invested)
...
Dec 2023    -5,000 (you invested)
Dec 2023    +2,10,000 (today's value)

Step 2: Use XIRR Function

In Excel or Google Sheets, use this formula:

=XIRR(Money Column, Date Column)

Result: About 12.5% per year

This is your real CAGR!

Why is 12.5% Different from 5.3%?

The 12.5% is correct because it considers that:

• Your first ₹5,000 was invested for 3 full years
• Your last ₹5,000 was invested for only 1 month
• Each investment had different time to grow

Quick Online Tool

Don’t want to do math? Use our CAGR Calculator for SIP to get instant and accurate results without any hassle.

Total Return vs. CAGR in SIP: Which is Better?

Many people get confused between total return and CAGR. Let’s make it simple.

What is Total Return?

Total Return just tells you how much extra money you made.

Simple Formula:

Total Return = ((Today's Value - Money Invested) / Money Invested) × 100

Example:

• Money you invested: ₹1,80,000
• Today’s value: ₹2,10,000
• Total Return = ((2,10,000 – 1,80,000) / 1,80,000) × 100 = 16.67%

What is CAGR?

CAGR tells you how much your money grew each year on average.

From our example: CAGR = 12.5% per year

Main Differences

1. Time Factor

• Total Return: Doesn’t care about time
• CAGR: Shows yearly growth

2. Comparing Investments

• Total Return: Can’t compare different time periods
• CAGR: Can compare any investments fairly

3. Real Picture

• Total Return: Can be misleading
• CAGR: Shows true yearly performance

Why CAGR is Better for SIP

1. Fair Comparison

CAGR lets you compare:

• Different mutual funds
• SIP vs one-time investment
• Your SIP vs stock market
• Short-term vs long-term investments

2. Realistic Goals

A 16.67% total return sounds great, but 12.5% CAGR shows the real yearly growth. This helps you set realistic expectations.

3. Better Planning

CAGR helps you:

• Decide how much to invest monthly
• Know if your current SIP amount is enough
• Plan when you’ll reach your money goals

4. Track Performance

CAGR clearly shows:

• If your fund manager is doing well
• How market ups and downs affected you
• If your investment plan is working

Simple Comparison Example

SIP Example 1:

• Monthly investment: ₹10,000
• Time: 2 years
• Final value: ₹2,60,000
• Total invested: ₹2,40,000
• Total Return: 8.33%
• CAGR: 4.08% per year

SIP Example 2:

• Monthly investment: ₹5,000
• Time: 5 years
• Final value: ₹3,50,000
• Total invested: ₹3,00,000
• Total Return: 16.67%
• CAGR: 3.14% per year

Example 2 has higher total return, but Example 1 has better CAGR. This means Example 1 performed better each year.

Quick Tip: Use our CAGR Calculator for SIP to quickly compare different SIP options and make smart decisions.

When to Use Each

Use Total Return When:

• You want to know total profit
• Calculating tax on gains
• Simple profit/loss check

Use CAGR When:

• Comparing different investments
• Checking fund performance
• Planning future investments
• Setting realistic expectations

Simple Summary

For SIP investors, CAGR is much better than total return. Here’s why:

• Shows Real Performance: Tells you actual yearly growth
• Helps Make Better Choices: Compare investments fairly
• Realistic Planning: Set achievable money goals
• Fair Comparison: Judge all investments on equal terms

Remember: A steady CAGR of 12-15% per year over many years is much better than high returns that don’t last long. Focus on CAGR, not just total returns, to make smart investment decisions.

Key Takeaways

1. CAGR shows yearly average growth – more useful than total return
2. Use online calculators for quick and accurate CAGR calculation
3. Compare SIPs using CAGR, not total returns
4. Aim for consistent 12-15% CAGR for long-term wealth building
5. CAGR helps in realistic financial planning and goal setting

Start tracking your SIP performance with CAGR today and make smarter investment decisions!