What is XIRR?

The right measure for a SIP or a real portfolio, where money went in at many prices. CAGR assumes one lump sum invested once; XIRR weights each instalment by how long it was actually invested.

Formally, XIRR is the single annual rate at which every cash flow — each purchase as a negative amount on its date, the current value (or each redemption) as a positive one — discounts back to exactly zero. There is no closed formula; it is found by iteration, which is why a spreadsheet's =XIRR() and ours can differ in the fourth decimal when the flows are irregular. The result is expressed as an annual compound rate, so it is directly comparable with a fund's CAGR, a fixed-deposit rate, or a loan's interest.

Why it diverges from CAGR, in both directions. A SIP into a fund whose NAV rose steadily will show an XIRR below the fund's CAGR — most of the money was invested late, at higher prices, and had less time to compound. A SIP through a crash and recovery will show an XIRR above the fund's CAGR, because the instalments bought cheaply on the way down. Neither means the fund did anything different; it means your money's timing did. This is also why 'absolute return' on a SIP is nearly meaningless: a 30% absolute gain is excellent over two years and poor over ten, and only XIRR says which.

Where it needs care. Over short spans — under a year — XIRR annualizes a small move into a large rate, so a SIP that is three months old can show +40% or −30% on a few percent of actual movement; ignore it until a year has passed. It also treats every flow as equally real: a dividend (IDCW) payout must be entered as a positive flow on its date, or the rate is understated, and the current value must be the redeemable value, net of exit load, if you want the figure you would actually get. The SIP calculator and the portfolio page here apply XIRR the same way, so the two agree on a fund you both simulate and hold.

For the formula and the constants behind this figure, see Methodology.