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What is XIRR and how to read your mutual fund returns
XIRR (Extended Internal Rate of Return) is the annualised return metric for investments with multiple cash flows at irregular intervals, like a SIP. It is the only meaningful way to compare SIP returns to a fixed deposit rate or a lumpsum.
In one line
XIRR is the annualised return that equates the present value of all your investment cash flows (each SIP instalment and any redemptions) with the current portfolio value, expressed as a single annual percentage so you can compare your SIP returns to a bank FD or any other annual rate, and a 12% XIRR on a 5-year SIP means your money compounded at 12% per year accounting for every instalment's timing.
BazaarBaaziSource & method
Why regular return metrics fail for a SIP
CAGR (Compounded Annual Growth Rate) assumes a single lumpsum invested at one point in time and grown for a known number of years. If you invested 1 lakh rupees and it became 1.61 lakh in 4 years, the CAGR is 12.8%. Clean and unambiguous. But a SIP investor puts in different amounts on different dates, each instalment experiencing a different time in the market. The 12th instalment of a 60-month SIP has only been invested for 48 months. The 60th instalment was invested yesterday.
Averaging the returns across instalments without accounting for the time each was invested distorts the picture. A rising market means recent instalments contributed less time but the same rupees, and averaging naively overstates the compounding. XIRR solves this by finding the single annual return rate that, when applied to each cash flow on its actual date, produces the final portfolio value. It is the internal rate of return extended to handle irregular timings.
Reading your XIRR number
Your mutual fund account statement or platform typically shows XIRR as a percentage. A 14% XIRR means your money, across all your SIP instalments, compounded at an equivalent rate of 14% per year. You can compare this directly to a 7% bank FD rate or a 10% PPF rate, because they are all expressed as annual returns. XIRR is the common language that makes the comparison honest.
XIRR can also be negative. If you started a SIP at a market peak and the current value is below your invested amount, the XIRR will be negative, showing the actual annualised loss. A very short SIP (3-6 months) will show extreme XIRR in either direction because small movements in NAV look enormous when annualised over a few months. XIRR stabilises and becomes meaningful for SIPs of 2 or more years.
How to calculate it yourself
In Microsoft Excel or Google Sheets, the XIRR function takes two arrays: the cash flows and their dates. Each SIP instalment is a negative number (money going out) on its payment date, and the current portfolio value is a positive number on today's date. The function returns the annualised rate. For example, 12 monthly SIP payments of negative 10,000 starting January and a current value of positive 1,30,000 as of December plugged into =XIRR(values, dates) gives you the annualised return.
Most brokers and mutual fund platforms display XIRR automatically, so manual calculation is rarely necessary. What matters is knowing what the number represents: the annualised return on your actual cash deployed, time-weighted to each instalment, expressed in a unit you can compare across different investment options.
FAQ4 reader questions · AEO-eligible
Common questions on what is xirr.
What is the difference between XIRR and CAGR?
CAGR is for a single lumpsum investment: you put in one amount, it grows for a known number of years, and CAGR is the annualised rate of that growth. XIRR handles multiple cash flows on different dates, like a SIP, and gives the equivalent annualised return for the whole series.
What is a good XIRR for a SIP?
There is no universal threshold. Compare your equity SIP XIRR against the index your fund tracks. A large-cap fund XIRR close to or above the Nifty 50's CAGR over the same period indicates reasonable performance. Compare debt fund XIRR against prevailing FD rates for context.
Why is my XIRR negative even though the market has gone up?
A negative XIRR means the current portfolio value is below your total invested amount, even after accounting for all your SIP dates. This happens when markets fell after your SIPs began or if you started during a peak. Given enough time in a fundamentally sound equity fund, XIRR typically recovers.
Can I calculate XIRR in Excel?
Yes. The formula is =XIRR(values, dates). Enter each SIP payment as a negative number with its date, and the current portfolio value as a positive number with today's date. The function returns the annualised return as a decimal (multiply by 100 for percentage).
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