Compound Annual Growth Rate (CAGR) is the average rate of returns that an investor earns from the money invested over a certain period of time. Absolute returns do not take into consideration an important factor – time value of money.

CAGR includes this factor in its calculation and is considered a more holistic statistic. This is an important parameter to consider while making any investment decision such as mutual funds. It enables an investor to compare various schemes across different time periods.