Why SIPs need XIRR
CAGR works for one investment on one date. A SIP is many small investments over time: the first rupee has been invested for years, the last for days. A simple "gain divided by money put in" ignores that. XIRR weights each instalment by how long it has actually been invested.
A worked example
You invest ₹10,000 on the 5th of every month from January to December 2025 (₹1,20,000 in all). On 5 January 2026 the investment is worth ₹1,30,000.
- Absolute return: (1,30,000 − 1,20,000) ÷ 1,20,000 = 8.3%.
- XIRR: about 15.7% a year.
Why the gap? The average rupee was invested for about six months, not a full year. To earn ₹10,000 on average-six-months money, the annual rate has to be roughly double the absolute figure. That is the number to compare with an FD rate or another fund.
The idea behind it
XIRR is the rate *r* at which the present value of all cash flows equals zero:
Σ CFᵢ ÷ (1 + r)^((dᵢ − d₀) ÷ 365) = 0
where CFᵢ is each cash flow (investments negative, the final value positive) and dᵢ its date. There is no closed-form answer, so software solves for it by iteration.
How to calculate it
- Spreadsheet: list dates in one column and cash flows in the other (investments as negatives, current value as a positive on the valuation date), then
=XIRR(values, dates). - Online: use the XIRR calculator.
- From a statement: your consolidated account statement (CAS) lists every transaction; many apps compute XIRR for you.
When XIRR can mislead
- Very short periods. An investment up 3% in two months "annualises" to a huge XIRR that no one should expect to continue.
- Large mid-way withdrawals or top-ups change the result sharply.
- It is a past number. It describes what happened to your money, not what the fund will do.
XIRR vs CAGR vs absolute return
| Measure | Use it for |
|---|---|
| Absolute return | Quick total gain; ignores time |
| CAGR | One investment, one end date |
| XIRR | SIPs and any series of cash flows |
Questions people ask
What does XIRR mean in mutual funds?
The annualised return of all your cash flows, weighted by date.
What is the difference between XIRR and CAGR?
CAGR assumes one investment; XIRR handles many.
What is a good XIRR?
Compare it with the fund's [benchmark](/learn/glossary/benchmark) and with the time you have invested. A number from a short period tells you little.
Can I calculate XIRR in Excel?
Yes: `=XIRR(values, dates)`.
Keep going
Run the numbers
Rolling Returns
How a scheme performed across every overlapping period of a chosen length, not just one window.
Also useful: XIRR calculator, SIP returns on real NAV
Related terms
How we can help
Sources
- Standard internal-rate-of-return mathematics (as implemented in the spreadsheet XIRR function)
- calculations by GTP Fintech Solutions.
Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. This page is general education, not personal advice. Back to the full glossary