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XIRR in plain English
Your app shows one percentage, the fund factsheet another, and neither seems to match what happened to your money. XIRR is the number that does.
Start with a fixed deposit
A bank FD pays, say, 7% a year. Put in ₹1,00,000 and a year later you have ₹1,07,000. Easy, because there was one deposit and one date.
Mutual fund investing is rarely that tidy. You start a SIP, top it up after a bonus, pause it for a few months, redeem some units for a holiday. Money goes in and out on dozens of different dates. Some rupees have been invested for six years, others for six weeks.
What XIRR answers
XIRR (extended internal rate of return) answers one question: what steady yearly rate, applied to every rupee from the day it went in until the day it came out (or until today), would produce exactly the result you got? It is the FD-rate equivalent of your actual investing history.
A worked example
You invest ₹1,00,000 on 1 January 2024 and another ₹1,00,000 on 1 January 2025. On 1 January 2026 the total is worth ₹2,30,000.
| Measure | Result | What it assumes |
|---|---|---|
| Absolute return | 15% | ₹30,000 gain on ₹2,00,000 invested. Ignores how long the money was invested. |
| XIRR | about 9.7% a year | Half the money was invested for two years, half for one. Each rupee is counted from its own date. |
| CAGR, if all ₹2,00,000 had gone in on day one | about 7.2% a year | One lump sum held for two full years, so the same gain is spread over more time. |
Same final amount, three different numbers, because timing matters. XIRR is the one that accounts for when your money actually went in.
XIRR versus CAGR
CAGR (compound annual growth rate) is the yearly growth rate between a single starting value and a single ending value. For a one-time lump sum that you never added to or withdrew from, CAGR and XIRR give the same answer.
The moment there is more than one cash flow, as with any SIP, CAGR stops describing your experience. It has no way to say that this month's instalment has been invested for a few weeks while the first one has been invested for years. XIRR handles that by giving each cash flow its own date. That is why XIRR is the better measure of your own return, while CAGR is still a fair way to describe how a fund or an index grew over a period.
Three things to keep in mind
- XIRR is annualised. 12% XIRR means 12% a year, comparable with an FD rate, a loan rate or an index's yearly return.
- It needs complete history. If the record of your early purchases is missing, the result can be badly wrong. That is why FolioQ labels the figure an estimate, and shows a simpler non-annualised return, when your statement does not explain every unit you hold.
- Short periods are noisy. Over a few months, annualising can turn a small move into a dramatic-looking percentage. XIRR is most meaningful over a year or more.
XIRR does not tell you whether a fund is good or what to do next. It tells you what your money has earned so far. Past returns do not indicate future returns.
See also What is XIRR?: the short reference version, with the formal definition and XIRR versus CAGR.