We invest in mutual funds to get returns. Now, how much returns are we actually getting? This we can find out if we calculate the CAGR or the compounded annual growth rate. Now to understand CAGR, we may design a complete course, maybe I will do it in the future. However, in this video, we will briefly look at what exactly CAGR and how it applies to mutual funds. CAGR is the compounded growth over multiple periods.

So, it is the growth rate at which the money grows from the initial investment value to the ending invest in investment value. Now, the growth rate that we are considering here in CAGR is a compounded interest rate. Now, the simple interest, the formula given here can be used to compute the CAGR. If we consider the principle, which we will call PV the present value of the principle invested at the rate of our RS which is a CAGR followed up for a period of n. So, n will be in annual terms that is number of years, one year, two year three year etc. Then using this formula, we can compute what will be the value of that principal at the end of the period and which we will denote by fv or future value. So, if you alter this formula, we can compute the value of R as fv divided by PV raised to the power of one by n minus one.

Thank you for listening. See you in the next lecture.