XIRR

What it is

XIRR — Extended Internal Rate of Return — is the true annualised return when money goes in (and comes out) at irregular times. A SIP involves dozens of instalments on different dates, each invested for a different length of time. A simple average return can't capture that. XIRR mathematically finds the single annual rate that reconciles every cash flow with the final value, giving you one honest percentage.

Why it matters

For anything other than a one-time lump sum, XIRR is the correct measure of return — CAGR only works when there's a single inflow and outflow. If you've been running a SIP for three years and want to know how it actually performed, XIRR is the number to look at. It also handles partial withdrawals, top-ups and lump-sum additions cleanly.

In India

Mutual fund apps like Groww, Kuvera, Zerodha Coin and ET Money report XIRR automatically for your portfolio. You can also compute it yourself in Excel or Google Sheets using the XIRR() function: list every SIP date as a negative cash flow, the final value as a positive one on today's date, and the function returns the annualised return.

Common mistakes

The most common error is comparing a SIP's *absolute* return to a lump sum's CAGR and concluding the SIP did worse — they simply aren't comparable, and you should use XIRR for the SIP. People also misread the figure their app shows: "absolute returns" can look impressively large simply because money was invested over many years, while XIRR (the annualised figure) is far more meaningful and often more modest. Another subtlety is that XIRR assumes interim cash flows are reinvested at the same rate, which can slightly overstate returns for very irregular flows, and a short measurement window can produce wild XIRR figures that mean little. Don't compare the XIRR of a one-year-old SIP with a ten-year-old one as if they were equivalent. When judging or comparing your real-world fund performance, always anchor on XIRR over a meaningful period, not the headline absolute gain, and use the same metric consistently across the investments you're comparing.