Why to check CAGR in Fund Selection for SIP
Introduction When it comes to wealth creation through Systematic Investment Plans (SIP) , investors often get confused about how to select the right mutual fund. Many look at short-term returns or star ratings, but one of the most reliable measures to evaluate a fund’s performance is the CAGR (Compound Annual Growth Rate) . Understanding CAGR helps investors know how consistently a fund has grown over time, making it a critical factor in SIP fund selection. ๐What is CAGR? CAGR (Compound Annual Growth Rate) is the rate at which an investment grows annually over a specified period of time, assuming the profits are reinvested. Unlike simple returns, CAGR smooths out the ups and downs of the market and gives a clearer picture of the fund’s true performance. For example, if a mutual fund grew from ₹1 lakh to ₹2 lakh in 5 years, the CAGR (15%) tells you the average annual growth rate during this period, instead of just the overall return. Why CAGR Matters in SIP Fund Selection 1...