t is the holding period in years: 5 years = 5.00 years. Absolute return is a different sum entirely: (₹2,50,000 − ₹1,00,000) ÷ ₹1,00,000 = 150.00%, with no reference to time at all.
| Point in time | Smoothed value | Total growth |
|---|---|---|
| Year 0 | ₹1,00,000 | 0.00% |
| Year 1 | ₹1,20,112 | 20.11% |
| Year 2 | ₹1,44,270 | 44.27% |
| Year 3 | ₹1,73,286 | 73.29% |
| Year 4 | ₹2,08,138 | 108.14% |
| Year 5 | ₹2,50,000 | 150.00% |
This is a straight line dressed up as growth. CAGR back-solves the one constant rate that connects your start point to your end point, so the table shows the path your money would have taken had every year been identical. The real path almost certainly was not: a fund that returned +45%, −18%, +30%, −6% and +26% can land on exactly the same 20.11% and feel nothing like this table on the way there.
| CAGR | ₹1 lakh becomes | Multiple |
|---|---|---|
| 6% | ₹1,79,085 | 1.79× |
| 8% | ₹2,15,892 | 2.16× |
| 10% | ₹2,59,374 | 2.59× |
| 12% | ₹3,10,585 | 3.11× |
| 15% | ₹4,04,556 | 4.05× |
Six percentage points separate the first row from the last, yet after ten years the gap is more than ₹2.25 L. That is why a couple of points of expense ratio or a few years of delay matter far more than they look on a single-year view.