XIRR vs CAGR: Which Return Number Should You Actually Use

Use CAGR when you invested once and did not touch the money again. Use XIRR when money went in or came out on multiple dates, which is what happens in every SIP, every top-up and every partial redemption. XIRR is the annualised return of a series of cash flows that accounts for the exact date of every rupee, while CAGR only knows a start value, an end value and a number of years.

Both are correct. They answer different questions, and mixing them up is how investors end up believing a fund did far better or far worse than it actually did.

Below: what each measures, a 12 month SIP example where the same Rs 12,000 gain reads as 10% and as 19%, and where neither number helps.

What CAGR actually measures

Compound annual growth rate is the single smooth yearly rate that would take a starting value to an ending value over a given period. It assumes one investment, one withdrawal, nothing in between.

Say you put Rs 1,00,000 into a fund and five years later it is worth Rs 2,00,000. The multiple is 2. The fifth root of 2 is 1.1487, so the CAGR is 14.87%.

That figure is useful for comparing two funds over the same window, and it is what factsheets publish. What it hides is the path. A fund that returned 40%, lost 20%, then returned 35% can print the same CAGR as one that ground out 14.87% every year. Your nerves would have had very different experiences.

What XIRR actually measures

XIRR stands for extended internal rate of return. It takes a list of dated cash flows, negative when you invest and positive when you redeem, and finds the annual discount rate at which everything balances to zero.

Date sensitivity is the whole point. A rupee invested 11 months ago has had far less time to compound than one invested 5 years ago, and XIRR weights them accordingly. If you run a monthly SIP, XIRR is the only honest annualised number for your account, because every instalment has a different age.

Any app showing you a personalised return is almost certainly showing XIRR, even if the label just says “returns”.

Worked example: same rupees, two very different percentages

Assume you run a SIP of Rs 10,000 on the 1st of every month for 12 months. Total invested is 10,000 multiplied by 12, which is Rs 1,20,000. At the end of month 12 the folio is worth Rs 1,32,000.

Your gain is 1,32,000 minus 1,20,000, which is Rs 12,000.

• Absolute return: 12,000 divided by 1,20,000 equals 10%.
• Naive CAGR: treating Rs 1,20,000 as invested for one full year also gives 10%.
• XIRR: close to 19%.

Why the gap? Only the first instalment was invested for 12 months. The last instalment was invested for about one month. On average your money was working for roughly 6.5 months, not 12. Earning 10% in about half a year annualises to nearly double that, which is where the 19% comes from.

Now flip it. If a friend’s SIP shows 19% XIRR while a fund reports 14% CAGR, you cannot conclude the SIP fund is better. That is an account level number against a scheme level number. The real trade-offs in SIP versus lump sum investing matter more than either percentage.

Which number appears where

Metric	Handles multiple dates?	Where you usually see it	Best used for
Absolute return	No	App dashboards, short holdings	Periods under one year
CAGR	No	Factsheets, fund comparison tables	Comparing schemes over the same window
XIRR	Yes	Your portfolio or folio statement	Judging your own SIP or staggered investing
Rolling returns	Not applicable	Research portals, some factsheets	Testing consistency across many start dates
Point to point return	No	Advertisements, one year and three year columns	Quick screening, easily flattered by start date

Why does my app show a different return than the fund’s factsheet?

Because they are measuring different things, and usually both are right.

The factsheet reports scheme level CAGR between two fixed dates for a hypothetical single investment. Your app reports XIRR on your actual instalments. Three more sources of divergence: you may hold a regular plan while the quoted figure is for the direct plan, IDCW payouts change the cash flow pattern, and any switch or partial redemption resets your effective holding period.

The direct versus regular gap is the underestimated one, since the commission difference compounds every year. See direct and regular plan differences.

How do I calculate XIRR myself?

You do not need software beyond a spreadsheet.

1. In column A, list every transaction date in order.
2. In column B, put each investment as a negative number, since money left your pocket.
3. Enter any redemptions as positive numbers on their actual dates.
4. On the last row, enter today’s date and the current market value of the holding as a positive number.
5. In an empty cell, type =XIRR(B:B, A:A) and format the result as a percentage.

Two cautions. XIRR needs at least one negative and one positive value or it errors out. And for a partly redeemed fund, use the units that remain, not the original units, for the closing value. Your mutual fund account statement has every date and amount you need.

Where both numbers stop being useful

Neither metric is a forecast. A 19% XIRR over 14 months mostly tells you the market went up during those 14 months.

• Short windows exaggerate. XIRR under a year annualises a small move into a dramatic percentage, in both directions.
• Neither deducts tax. Long term equity gains above Rs 1.25 lakh a year are taxed at 12.5%, short term at 20%, and specified debt funds bought on or after 1 April 2023 at your slab rate.
• Neither deducts exit load, which is charged on redemption value and disclosed in the scheme information document.
• Expense ratio is already inside NAV, so it is captured, but a persistent cost gap still shows up over a decade.
• A single figure says nothing about whether the fund beat its benchmark index, the comparison that matters for an active scheme.

Risk note: past return, measured any way, does not repeat on demand. Equity funds fall, sometimes hard, and a good XIRR does not shorten the recovery.

Frequently Asked Questions

Is XIRR always higher than CAGR for a SIP?

No. In a steadily rising market, SIP XIRR tends to look higher than the fund’s CAGR because your money was invested for a shorter average period. In a falling market the effect reverses and XIRR looks much worse. Direction depends on when the market moved relative to your instalment dates.

What is a good XIRR for an equity mutual fund SIP?

There is no fixed target. Judge it against the scheme’s benchmark over the same period and against peers in the same category, not against a number you read somewhere. The figure is noisy over short periods, so give an equity SIP five to seven years before treating it as meaningful.

Can XIRR be negative?

Yes. When current value sits below the money you put in, XIRR comes out negative, and it looks sharper than the simple loss percentage over a short period. That is a normal reading during a market correction, not a calculation error.

Should I use XIRR to compare two different mutual funds?

Only if you invested identical amounts on identical dates in both, which is rare. Otherwise your own cash flow timing contaminates the comparison. For fund against fund, use CAGR or rolling returns over the same window, then check expense ratio and category.

Does XIRR account for dividends or IDCW payouts?

It does, provided you enter each payout as a positive cash flow on its credit date. Skip those entries and use only the closing value, and XIRR understates your return. Growth option holders avoid the issue entirely because nothing is paid out.

Which return number should I check when reviewing my portfolio each year?

Start with portfolio level XIRR to see what your actual money earned, then check each scheme’s CAGR against its benchmark to see whether the fund or the market did the work. Both together take ten minutes, which is enough for an annual review.

Key Takeaways

• CAGR assumes one investment and one exit. XIRR handles many dated cash flows, which is why it fits SIPs.
• A 12 month SIP of Rs 10,000 reaching Rs 1,32,000 is 10% absolute but roughly 19% XIRR, because average money age was about 6.5 months.
• Never compare your account XIRR against a factsheet CAGR and conclude one fund beat another.
• Use =XIRR(values, dates) with investments negative, redemptions positive and current value on the last row.
• XIRR under one year is noisy both ways, so treat it as information, not a verdict.
• Neither metric subtracts tax or exit load, so take-home return is lower than the screen says.