Aditya Birla Capital (2024)

If you invest in mutual funds, Extended Internal Rate of Return (XIRR) is one of the ways to compute the returns your investment generates. Read this post to learn more.

Compounded Annual Growth Rate or CAGR is one of the most commonly used methods to calculate returns from a mutual fund investment. However, CAGR is only useful for calculating systematic or point-to-point returns. For instance, if the value of your investment of ₹10 lakhs is ₹18 lakhs after 10 years, you can use CAGR to calculate the rate of returns.

But what if there are multiple cash flows, like in the case of a mutual fund SIP (Systematic Investment Plan)? In such cases, XIRR (eXtended Internal Rate of Return) offers a clearer picture of the rate of returns. Let’s take a look at what is XIRR, how it is calculated, and more-

What is XIRR?

XIRR or Extended Internal Rate of Return is that single rate of return that provides the current value of the total investment when it is applied to each instalment in a systematic investment plan (SIP). XIRR is the actual returns on your investments.

Investment cash flows can be dynamic. For instance, if you start a SIP, you might continue to invest for 10 months, skip the payments for 3 months, and then resume it again. Alternatively, you might also keep changing the SIP amount at regular intervals or even redeem some part of the investment.

XIRR is used for calculating investment returns with multiple transactions that are not evenly spaced. XIRR is a single rate of return that can give the total value of your investment as it is applied to all the instalments and redemptions.

How is XIRR Different from CAGR?

CAGR is an absolute annualised return. So, while it can calculate the returns you generate on every instalment, the inflows and outflows are not considered. On the other hand, XIRR meaning is a metric that takes every inflow and outflow into consideration to provide an overall CAGR average.

Here are some of the biggest differences between the two-

CAGR	XIRR
CAGR is the absolute annualised return	XIRR is the average annualised return
CAGR only considers the initial value, investment tenure, and final value	XIRR considers every inflow and outflow of cash
Ideal for lump-sum investments	Ideal for investments like SIPs with multiple inflows and outflows
It is the compounded annual growth rate	It is the average return generated by every cash flow throughout the investment tenure

How is XIRR Calculated?

Now that you know what is XIRR in mutual funds, let’s see how it is calculated-

People generally use MS – Excel to calculate XIRR. If you’d like to do the same, follow these steps-

Enter all the investment inflows and outflows in Column 1. Mark the outflows, such as acquisitions and investments, as negative and inflows, like redemptions, as positive.
In Column 2, enter the date for all the transactions.
The last row will have the current value of the holdings and the redemption date.
Now, type the XIRR function in Excel “=XIRR (values, date, guess)” in the box below the redemption value and press enter to get the rate of returns. Multiply the value by 100 to get the XIRR. Note that guess is an optional parameter in the XIRR formula in Excel.

Example of XIRR Calculation in Excel

Here’s how the XIRR of a 6-month SIP in a mutual fund scheme will be calculated in Excel-

●SIP Amount= ₹5,000
●SIP Investment Period= 1/1/23 to 1/06/23
●Redemption= 1/07/23
●Maturity Amount= ₹32,000

A	B
01/01/23	-5,000
07/02/23	-5,000
02/03/23	-5,000
09/04/23	-5,000
01/05/23	-5,000
01/06/23	-5,000
01/07/23	32,000
XIRR	=XIRR(B2:B8,A2:A8)*100

After entering the XIRR formula values in the box below the redemption value, you’ll get the XIRR as 25.38%.

As manual XIRR calculation is complex and time-consuming, many online platforms have an XIRR calculator where you can easily calculate the XIRR of your investment.

Disclaimer - This simulation is based on assumed rate of returns and it is meant for illustration purposes only. Loads are not taken into consideration in the above investment simulation. Neither Aditya Birla Sun Life Mutual Fund / Aditya Birla Sun Life AMC Limited nor any person connected with them, makes no warranty about the accuracy of this calculator and will not accept any liability arising from the use of this calculator. The recipient(s) before acting on any information herein should make his/her/their own investigation and shall alone be fully responsible/liable for any decision taken on the basis of information contained herein. Past performance may or may not be sustained in the future.

Using XIRR to Analyse the Performance of Your Mutual Fund Investments

CAGR is one of the most important metrics to analyse mutual fund schemes for your investment. But it is with XIRR that you can accurately calculate the returns you generate from your investment which involves multiple transactions across unevenly spaced intervals.

If you're investing in mutual funds via the SIP mode, use an online XIRR calculator to analyse its performance. Alternatively, you can consult a financial advisor who can help you build a mutual fund portfolio according to your investment objectives.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.