Why looking at just the CAGR can be deceiving

For most investors, the appreciation in a fund’s net asset value (NAV) is sacrosanct. But, making an investment decision primarily based on past performance is a bad idea, because a fund’s performance on the returns front can be deceiving. That’s correct! You might be wondering how basic numbers can deceive. The answer is CAGR, which stands for compound annual growth rate. It is a representative figure, not a genuine average. Simply put CAGR is a tweaked version of the compound interest formula which makes it simple for investors to gain a broad picture of the performance of a mutual fund or stock.

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