XIRR stands for Extended Internal Rate of Return. It is the annualised return of an investment where money goes in and out on irregular dates, which describes almost every real portfolio: a monthly SIP, a top-up after a bonus, a partial redemption for a wedding, a fresh purchase eight months later.
CAGR can only handle one amount in and one amount out. XIRR handles any number of dated cash flows, which is why Indian mutual fund statements and platforms now report XIRR rather than CAGR for SIP investors.
Why a SIP needs it
Consider a Rs 5,000 monthly SIP run for three years. You have invested Rs 1,80,000 in total, but not on one day. The first instalment has been working for 36 months. The last has been working for one.
If the portfolio is worth Rs 2,10,000 at the end, a naive calculation says you gained Rs 30,000 on Rs 1,80,000, which is 16.7%, and over three years that "sounds like" about 5.3% a year. Both figures are wrong. Your average rupee was invested for roughly 18 months, not 36, so the actual annualised return is closer to 10.5%.
XIRR gets this right automatically because it weights every instalment by how long it was actually invested.
How the calculation works
XIRR finds the single annual discount rate at which the present value of all your cash flows, each dated, sums to zero.
You do not solve this by hand. There is no closed-form answer; spreadsheets find it by iteration. In practice:
- List every date on which money moved
- Enter money you paid in as a negative number
- Enter money you received, plus the current value on today's date, as a positive number
- Apply the XIRR function to the two columns
The sign convention is where most people go wrong. If every number is positive, the function returns an error or nonsense.
A worked layout
| Date | Cash flow |
|---|---|
| 01 Apr 2023 | minus 5,000 |
| 01 May 2023 | minus 5,000 |
| ... each month ... | minus 5,000 |
| 01 Mar 2026 | minus 5,000 |
| 04 Sep 2026 | plus 2,10,000 |
The final positive row is not a real redemption. It is the current market value entered on today's date, which is how you measure an ongoing investment without selling anything.
XIRR against the alternatives
| Best used for | Handles multiple dates | Handles withdrawals | |
|---|---|---|---|
| Absolute return | Total gain, any period | No | No |
| CAGR | A single lumpsum, start to end | No | No |
| XIRR | SIPs, top-ups, partial exits | Yes | Yes |
For a one-time lumpsum held untouched, XIRR and CAGR give the same answer. The moment there is a second transaction, only XIRR is correct.
Reading your XIRR sensibly
A short-horizon XIRR is unstable. In the first year of a SIP, a small market move produces an extreme annualised figure because the numbers are being scaled up to a yearly rate from a few months of data. A 40% XIRR after eight months means very little.
It is nominal and pre-tax. Subtract inflation and the tax you will owe on capital gains to know what you actually kept.
It reflects your behaviour, not just the fund's. If you invested heavily near a peak and stopped during a fall, your XIRR will be below the fund's own published return. That gap is the cost of timing, and seeing it measured is genuinely useful.
Compare like with like. An XIRR on an equity SIP started three years ago is not comparable to an FD rate, because one is a realised path through a specific market and the other is a contracted rate.
Where to find yours
Most Indian platforms show XIRR on the portfolio page. The consolidated account statement from CAMS or KFintech can be exported and run through a spreadsheet if you hold funds across several apps and want one honest number across all of them.