Turn a total return, earned over any period, into its per-year (yearly) equivalent.
Takes the nth root of the total growth multiple, where n is the number of years.
CAGR: (End ÷ Start)^(1/years) − 1
The annualized return calculator converts a gain earned over any length of time, whether eight months or eight years, into the equivalent rate per year. It uses the compound growth formula, so the result is the same as a CAGR, but its focus is on putting investments with different holding periods on one scale.
Suppose one friend made 22% on a fund in 18 months, and another made 50% on a property in 5 years. Who did better per year? Neither percentage tells you directly. Annualizing both answers the question.
It is useful for anyone comparing holdings bought at different times, and for checking claims such as 'this scheme doubled money in six years'.
1. Note the initial value I, the final value F and the holding period in years t.
2. Convert months or days to years if needed: t = months ÷ 12, or t = days ÷ 365.
3. Compute the growth multiple: F ÷ I.
4. Raise it to the power 1 ÷ t: (F ÷ I)^(1/t).
5. Subtract 1 and multiply by 100 to get the annualized return.
6. For a period under one year, note that the result assumes the same pace continues for a full year.
A 100% gain over two years is not 50% a year. At 50% a year, ₹100 would become ₹150 after one year and ₹225 after two, overshooting ₹200. The correct yearly rate is √2 − 1, about 41.4%, because each year's growth builds on the previous year's. Dividing the total return by years ignores this compounding and always overstates the yearly rate for gains. For losses, the simple division understates how bad things were per year.
When t is below 1, the exponent 1 ÷ t is greater than 1, so the growth multiple is raised to a high power. A 5% gain over two months annualizes to about 34% a year, since 1.05⁶ is roughly 1.34. That number is mathematically correct but assumes the same pace for a full year, which rarely happens. This is why Indian mutual fund factsheets generally show returns for periods under one year as simple, absolute figures rather than annualized ones. Treat short-period annualized figures as a curiosity, not a forecast.
Holding periods rarely come in whole years. Count the exact days between purchase and sale and divide by 365, or use months divided by 12. The formula works for any positive t, so 2.75 years is fine. Be consistent: if you annualize one investment using days, do the same for the other you are comparing it with. Small errors in t matter more for short periods; over many years, an error of a few days makes almost no difference.
Shalini put ₹1,50,000 into a balanced advantage fund 21 months ago, and it is now worth ₹1,72,000. She wants a yearly figure to compare with her FD.
Answer: Annualized return (CAGR) 8.13%
Dividing the total return by the number of years.
Annualizing a few weeks of gains and expecting that rate to continue.
Entering the holding period in months into a field that expects years.
Using this on a SIP's total invested and current value, which ignores when each instalment was made.
Comparing a pre-tax annualized return with a post-tax FD rate.
Comparing investments held for different lengths of time.
Checking whether a scheme's 'doubles in X years' claim is realistic.
Putting a property's gain on the same yearly footing as a deposit rate.
Evaluating how a stock performed between purchase and sale dates.
Why not just divide the total return by the number of years?
Simple division does not account for compounding. A 100% total gain over 2 years is not a 50%-per-year return — it is about 41.4% per year, because each year's gain builds on the growth from the year before.