Worked Example
How does ₹5 lakh grow over 15 years at 12% CAGR?
Scenario
Rohit, age 30, software professional in Pune, ₹12 lakh annual income, ₹50K monthly expenses, exploring this question for his financial plan
Inputs
- Years
- 15
- Initial INR
- 5,00,000
- Inflation %
- 6
- Expected return %
- 12
Calculation
- 1.
Compounding multiplier over tenure
(1 + 0.12)^15 → 5.47x
- 2.
Future value (nominal)
₹5L × 5.47 → ₹27.37 L
- 3.
Future value (real, after 6% inflation)
Nominal ÷ (1.06)^15 → ₹11.42 L
- 4.
Real CAGR (after inflation)
Nominal − Inflation (Fisher approx) → 6%
Conclusion
₹5 lakh grows to approximately ₹0.27 crore in 15 years at 12% — but real purchasing power after 6% inflation is closer to ₹0.11 crore.
Tradeoffs
Steady-rate assumption fails in volatile asset classes (equity has 20-30% drawdowns regularly). Lumpsum invested at market peak vs trough can differ ±30% over decade. STP/SIP smooths timing risk for amounts above ₹5-10 lakh.