Worked Example
How does ₹6 lakh grow over 7 years at 12% CAGR?
Scenario
Anjali, age 35, mid-career marketing manager in Mumbai, ₹18 lakh annual income, married with one child, ₹70K monthly household expenses
Inputs
- Years
- 7
- Initial INR
- 6,00,000
- Inflation %
- 6
- Expected return %
- 12
Calculation
- 1.
Compounding multiplier over tenure
(1 + 0.12)^7 → 2.21x
- 2.
Future value (nominal)
₹6L × 2.21 → ₹13.26 L
- 3.
Future value (real, after 6% inflation)
Nominal ÷ (1.06)^7 → ₹8.82 L
- 4.
Real CAGR (after inflation)
Nominal − Inflation (Fisher approx) → 6%
Conclusion
₹6 lakh grows to approximately ₹0.13 crore in 7 years at 12% — but real purchasing power after 6% inflation is closer to ₹0.09 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.