CAGR vs Average Annual Return

CAGR is not an arithmetic average annual return

CAGR is a geometric annualized rate connecting a beginning value and ending value across the specified duration. It answers what constant yearly rate is equivalent to that endpoint change.

An arithmetic average annual return adds actual period-by-period returns and divides by the number of periods. That calculation requires the individual annual returns; it is not produced by the CAGR calculator.

Endpoints alone cannot supply an arithmetic average

For ₹1,00,000 growing to ₹2,00,000 over five years, the engine calculates CAGR of 14.87%. Beginning value, ending value and years alone are not sufficient to calculate an arithmetic average of the actual annual returns because the intervening yearly observations are unknown.

Different hypothetical annual-return sequences can connect the same endpoints. Presenting an arithmetic average without those observations would invent data that the calculator neither requests nor calculates.

Keep annualization separate from averaging

Use CAGR when the available question is limited to annualizing a beginning-to-ending relationship. Use the phrase average annual return only when the period-by-period returns and the averaging method are explicitly available.

Neither label by itself shows volatility, interim cash flows or future performance. CAGR does not equal the arithmetic average annual return and is not an actual constant yearly return or forecast.

Review the endpoint formula in CAGR Explained and the missing-path issue in Why CAGR Can Hide Year-to-Year Volatility.