XIRRXIRR
The real return when you invest in bits (a SIP) — it accounts for the timing of every instalment. The number that actually reflects a SIP investor's experience.
Why you care
XIRR is CAGR's honest sibling for the way people actually invest: a bit every month. It accounts for the fact that each SIP instalment has been invested for a different length of time, and gives you the single annual rate that reflects all of them. It's the number that describes your return, not the fund's.
Run the numbers
₹10,000 a month for 5 years — ₹6 lakh in — grows to ₹8.5 lakh. The XIRR is about 13.9% (illustrative). Treat the same ₹6 lakh as a lumpsum invested 5 years ago and you'd wrongly get ~7.2%, because most instalments were actually invested for far less than 5 years. XIRR gets it right.
Where this goes
XIRR is where the spine lands for most real investors, because most invest via SIP, not lumpsum. It builds on the net return after TER and is dented by any exit load you pay. Where CAGR fits a single investment, XIRR fits many — same idea, real-world timing.
Why you care
XIRR (extended internal rate of return) is the single annualised rate that makes the timing of every cashflow add up. Each SIP instalment you put in, on its actual date, and the final value you took out. It's the return measure built for how Indians actually invest, which is a fixed sum every month rather than one lump at the start.
The reason it can't be replaced by CAGR is timing. In a SIP, your first instalment might compound for five years and your last for one month. There's no single holding period to raise to a power, so CAGR simply doesn't apply. XIRR solves the harder problem: it finds the one rate at which all those staggered inflows, each discounted from its own date, equal the money you ended with. That's why the XIRR your app shows for your SIP can look quite different from the "5-year return" the fund advertises. The fund's number assumes a lumpsum five years ago; your money mostly wasn't there for five years.
Run the numbers
You run a SIP of ₹10,000 a month for 5 years (60 instalments, ₹6,00,000 invested) and end with ₹8,50,000 (illustrative):
- The naive way: treat ₹6 lakh as if invested as a lumpsum 5 years ago growing to ₹8.5 lakh. That gives (8.5/6)^(1/5) − 1 ≈ 7.2% — and it's wrong, because your money wasn't all there for 5 years.
- The right way: XIRR discounts each instalment from its own date. Solving for the rate that balances all 60 inflows against the ₹8.5 lakh gives an XIRR of about 13.9%.
The gap between 7.2% and 13.9% is not a rounding issue; it's the difference between a wrong method and a right one. Your ₹2.5 lakh gain came from money that was, on average, invested for roughly half the period, so it represents a much higher annual rate than the naive lumpsum math suggests. This is why every serious SIP tracker reports XIRR.
Where this goes
XIRR is where the spine resolves for the typical investor, since most arrive through a SIP rather than a lumpsum. It sits on top of the net return after TER — the fund's cost is already inside the NAVs XIRR uses — and it's reduced by any exit load you trigger by redeeming early. Read plainly: CAGR is the return of an investment, XIRR is the return of an investor.
What causes what
Before this
- Exit Loadcauses XIRRAn exit load is deducted from redemption proceeds, so it dents the real realised return.
- Net Return (after TER)causes XIRRIt's the base the investor's realised, timing-aware return is computed from.
- SIPcauses XIRRBecause a SIP invests in instalments, XIRR is the only honest way to measure its return.
- Tax: the Second Silent Dragcauses XIRRThe investor's true realised return is computed on post-tax proceeds — tax is the last haircut before XIRR.