ROI vs CAGR: How to Compare Investments Fairly
Updated 7 November 2026 · 5 min read
Total return and annualised return explained with an example — and why CAGR is the fair way to compare investments held for different periods.
ROI: the total gain
Return on investment (ROI) = (final value − amount invested) ÷ amount invested × 100.
If ₹1,00,000 grows to ₹1,61,051, the ROI is 61.05%. ROI tells you how much you gained in total, but not how long it took.
CAGR: the yearly growth rate
Compound annual growth rate (CAGR) spreads that gain evenly across each year, including compounding.
In the example above, if the money took 5 years to grow, the CAGR is exactly 10% per year, because 1.10 multiplied by itself five times is 1.61051.
Why CAGR is fairer for comparisons
A 60% return over 5 years and a 40% return over 2 years are hard to compare by ROI alone. CAGR turns both into a yearly rate — about 9.9% and 18.3% — so you can see that the second investment grew much faster per year.
What ROI and CAGR don't show
Keep these limits in mind:
- They ignore risk — two investments with the same CAGR can behave very differently in bad years.
- They assume no money was added or withdrawn in between.
- Fees, taxes and inflation reduce real returns; include them where you can.
- Past growth does not guarantee future growth.
Using the calculator
Enter the amount invested, the final value and the duration. The calculator shows total ROI, net gain and the annualised return. It is meant for learning and comparison — for investment decisions, speak to a registered financial adviser.