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CAGR 🤝 Smallcase



You might have observed that compound annual growth rate (CAGR) is a common metric for displaying the success of various investments.


The same applies to smallcase. The compound annual growth rate (CAGR) is a practical metric for assessing the success of any investment strategy. As it contains crucial details, let's examine its uses and benefits.


Revisiting Basics

What are smallcases?

Smallcases are a portfolio of stocks, selected by experts, that are bundled together. They are like mutual funds and can be bought and sold as a single unit.


You can examine Various Smallcases and invest in the basket of funds that best meets their needs using a Demat and trading account from one of the several brokerage houses.


Who manages these Smallcases?

The components in each basket are selected and organised into Smallcases by SEBI Registered Professionals using stringent proprietary criteria. Just like at Rupeeting.


Is it paid?

Managers charge a fee for viewing and investing in the components of premium smallcases. These smallcases are actively managed in an effort to outperform the market and provide impressive returns.

Investors can still access free access smallcases and invest in them without paying any fees. The profits made are still rather modest.


Measuring Performance

Stocks and exchange-traded funds (ETFs) are already combined in smallcases. Smallcases can be evaluated using a variety of metrics, the returns they produce being among the most crucial.

The CAGR can be helpful in this situation.


Simply said, the CAGR is the rate of return on your investment in Smallcases expressed as a percentage every year. The compound annual growth rate is a useful metric for comparing the success of various investments over varying time periods.


CAGR accounts for an asset's growth in value over time, but not its dividends. While dividends are credited to an investor's account in Smallcase investing, it is wise to reinvest dividends into the basket of stocks and ETFs to increase the rate at which your money compounds and grows.


Understanding CAGR


💡 Formula : CAGR = [(Final Value/Initial Value)^(1/time in years)] – 1


We need measures like CAGR due to the compounding nature of the securities we invest in. When the profits from an asset are reinvested, the asset grows exponentially as a result of compounding.

The compound annual growth rate (CAGR) is a metric used to illustrate typical yearly returns.


An investment's rate of return is essentially a statistic that describes the pace at which an investment has grown over time, presuming the investment has grown at a constant annual rate and that earnings have been reinvested annually.


The compound annual growth rate (CAGR) formula is used to evaluate the past and project the future of various investments. To the highest degree of accuracy and reliability, it computes the returns of assets, portfolios, and other securities whose values fluctuate over time.


In order to determine CAGR, we need to know three things: how much we invested initially, how many years have passed, and how much money we have now.


Let's better understand this through an example:

  • You invested Rs.1,000 in smallcase 5 years ago

  • Today the value of the same smallcase is Rs.1,996. If you calculate the absolute return, it would be around 99%

  • This is not useful as an investor wants to know the yearly growth in the investment, to get a better picture of what you are getting into. So let’s apply the formula mentioned above

  • CAGR = [(1,996/1,000)^(1/5)]-1 = 11%

  • As a result, you get 11% per year

CAGR in Smallcase

The compound annual growth rate measures the overall financial success of the Smallcase since its inception. If the Smallcase has been active for less than a year, the compound annual growth rate represents the absolute return earned from its start.


The CAGR calculations are based on live data, as this data represents the time period for which the CAGR was calculated.


This not only guarantees that the investor is well informed about how the returns on their Smallcases are calculated, but also facilitates more accurate comparisons between the investor's Smallcases.


Check out our selection of Rupeeting Equity portfolios, curated by experts who have over 50 years of combined investment expertise and have overseen the management of over Rs. 50,000 crore.



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