Worked Example
How does ₹1 lakh grow over 6 years at 12% CAGR?
Scenario
Investor evaluating doubling time at various return rates
Inputs
- Years
- 6
- Initial INR
- 1,00,000
- Inflation %
- 6
- Expected return %
- 12
Calculation
- 1.
Compounding multiplier over tenure
(1 + 0.12)^6 → 1.97x
- 2.
Future value (nominal)
₹1L × 1.97 → ₹1.97 L
- 3.
Future value (real, after 6% inflation)
Nominal ÷ (1.06)^6 → ₹1.39 L
- 4.
Real CAGR (after inflation)
Nominal − Inflation (Fisher approx) → 6%
Conclusion
₹1 lakh grows to approximately ₹0.02 crore in 6 years at 12% — but real purchasing power after 6% inflation is closer to ₹0.01 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.