What is ROI?
Return on Investment = (Gain – Cost) / Cost × 100. Simple ROI tells you the total percentage gain but doesn't account for time. A 50% return over 1 year is far better than 50% over 10 years.
What is CAGR?
Compound Annual Growth Rate normalises returns to a yearly rate: CAGR = (End Value/Start Value)^(1/years) – 1. This lets you fairly compare investments of different durations.
CAGR Benchmarks India
- Nifty 50: ~12% CAGR (20-year average)
- Gold: ~10% CAGR
- Real Estate: ~8–10% CAGR
- FD: ~6.5–7% CAGR
- Savings Account: ~3.5–4%
Absolute vs Annualised Returns
Absolute return: total gain percentage. Annualised (CAGR): yearly equivalent. For investments held over 1 year, always compare CAGR, not absolute returns.
Common ROI Mistakes
- Ignoring inflation (real ROI = nominal ROI – inflation)
- Not accounting for taxes and fees
- Comparing different time periods without annualising
- Overlooking reinvestment of dividends