Yes, the Extended Internal Rate of Return (XIRR) is specifically designed to calculate an annualized rate of return for investments with irregular cash flows and dates, making it the accurate measure for things like SIPs or bond interest payments at different times. It effectively tells you the yearly growth rate your investment achieved, regardless of how long or uneven the actual period was, by finding the single rate that makes the Net Present Value (NPV) of all transactions zero.
Yes, XIRR is perfectly suited for SIP investments and provides the most accurate measure of returns for systematic investments. Since SIPs involve multiple transactions at different NAVs, XIRR accounts for both the timing and amount of each investment, giving you the true annualised return on your SIP portfolio.
XIRR Extended Internal Rate of Return) is a financial metric used to calculate the annualized return on investments with multiple cash flows occurring at irregular intervals.
The fact that XIRR can generate daily results does not mean it compounds daily; in fact, XIRR compounds annually, but it simply has the ability to provide results based on inputs from any given day. The underlying formula that XIRR utilizes is as follows: (1+R)^(#days/365)-1.
Absolute Return provides a quick view of profit or loss, ideal for short-term, single investments. XIRR, on the other hand, gives a more accurate and time-adjusted picture of long-term investments with varied cash flows. Together, they help investors assess performance from both a simple and time-sensitive perspective.
What does 20% XIRR mean? A 20% XIRR indicates that the investment has yielded an average annual return of 20%, taking into account the timing and size of each cash flow. This means that over the investment period, the investment has grown at an annualised rate of 20%.
Difficult to interpret for short-term investments
XIRR can produce misleading or exaggerated results when applied to very short-term investments with limited transactions.
A good XIRR in mutual funds depends on your goals and investment type. For equity mutual funds, an XIRR above 12–15% over the long term is considered good. Importantly, the XIRR in SIP should exceed the inflation rate to grow real wealth. Always compare it with benchmark returns and your risk tolerance..
XIRR allows cash flows to occur on any date, with values that may vary and represent either income (positive) or expenditure (negative). At least one value must be negative and at least one value must be positive. XIRR assumes that all years (including leap years) comprise 365 days.
How much XIRR to double in 3 years? To double your investment in 3 years, you need an approximate XIRR of 24% per annum as per the Rule of 72. 72 divided by the number of years (72/3 = 24).
A 10% annualized total return might be considered good by some investors, while others would prefer to see a higher rate. It depends on your investing goals, timeframe, and strategy.
One thing to keep in mind as you watch is that the =XIRR() formula annualizes the IRR, whereas the =IRR() formula will return the rate of return for the period (month, quarter, year, etc.). In other words, if you measure the IRR for one month using the =IRR() formula the function will return the IRR for that month.
XIRR takes into account the exact date of every installment, lump sum, and withdrawal, rather than assuming all investments were made at the same time. For this reason, an sip investment planner may recommend using an XIRR calculator sip to review performance, as it provides the most accurate measure of returns.
The problem? Excel's built-in XIRR function expects the first value in its range to be negative. So, if the first cell (or the first several cells) are zero, XIRR will always return 0.00%, even if cash flows materialize later.
In plain language, xirr is the annualised rate at which the present value of all cash outflows (investments) equals the present value of all cash inflows (redemptions or the current value). Because each cash flow is dated, xirr automatically handles monthly SIPs, irregular amounts, pauses, and switches.
XIRR helps you calculate annualised returns on investments when you have made multiple transactions at different times, particularly for Systematic Investment Plans (SIPs).
Regardless of what the spacing of your cash flows is, XIRR will always return an effective annual rate. It does so, as illustrated, by using the actual number of days between cash flows and a 365-day year.
For example, if inflation is at 2%, an XIRR of 7-9% might be considered satisfactory for a moderate-risk equity fund. However, expectations can vary based on the type of fund. A conservative debt fund might target an XIRR of 5-6%, while an aggressive small-cap fund could aim for 12-15%.
PP = monthly SIP amount, rr = monthly rate of return (annual return/12), nn = total number of months (60 for 5 years). Using this, a ₹1,31,597 monthly SIP at 9% annual return compounded monthly can grow to ₹1 crore in 5 years.
With Active vs Lifetime XIRR, you get more control, more clarity, and more confidence in tracking your investments. Open Groww today, pick your XIRR view, and see your returns the way you want. This feature is live for all Groww users on the latest versions of Android.
The return value of the XIRR functionality can be positive or negative. In the case of an investment, a negative result indicates that the investment is a loss. The amount of gain or loss can be calculated simply by making a sum aggregation over the payments field.
For Systematic Investment Plans (SIPs), XIRR is clearly the better metric. SIPs involve regular, periodic investments, which means the cash flows are staggered across time. CAGR, which assumes a single investment at the beginning, fails to capture this timing and can distort the actual performance of a SIP.