🎯 What is XIRR?
XIRR stands for Extended Internal Rate of Return. It is used to calculate annualized returns on investments where multiple transactions occur at different points in time.
Why SIP Needs XIRR:
When you invest ₹5,000 every month for 5 years, each ₹5,000 stays in the market for a different number of days. XIRR calculates the exact return for every single installment.
⚙️ How XIRR Works
XIRR factors in:
- Exact cash outflow dates (monthly SIPs, lump sums)
- Exact cash inflow dates (redemptions, dividends)
- Current portfolio valuation
⚖️ Comparison: CAGR vs XIRR
CAGR (Point-to-Point):
Assumes money was invested all at once at the start. Using CAGR for a SIP gives inaccurate results.
XIRR (Cash Flow Based):
Considers the exact timeline of every installment, giving the true return rate of your SIP.
💡 Pro Tip for Investors
Always evaluate your mutual fund SIP portfolio using XIRR (available in your CAMS / KFintech / Broker statement) rather than simple absolute percentage returns.