How ROI is calculated
ROI = (Final value − Initial investment) ÷ Initial investment × 100
Total ROI tells you the cumulative percentage gain. Annualized ROI (also called CAGR — compound annual growth rate) tells you the equivalent yearly return, which is the only fair way to compare investments of different durations.
CAGR = (Final ÷ Initial)1/years − 1
ROI benchmarks
| Investment | Typical CAGR |
|---|---|
| Savings account / FD | 3-7% |
| Government bonds | 6-8% |
| Index funds (long term) | 10-12% |
| Individual equities | Highly variable |
| Real estate (long-term) | 6-10% + rental yield |
FAQ
What's the difference between ROI and CAGR?
ROI is the total percentage gain regardless of time. CAGR smooths it into a yearly rate. A 100% ROI over 10 years is only ~7.2% CAGR — not as impressive as it sounds.
Does ROI include dividends/rental income?
It depends on how you define final value. If you reinvested all dividends or rent, include them in final value. If you took them out, add the cumulative income to final value for a complete picture.
Can ROI be negative?
Yes. If final value is less than initial investment, ROI is negative — i.e., you lost money.