What is XIRR in Mutual Funds?
XIRR (Extended Internal Rate of Return) is the return calculation that correctly accounts for your actual cash flows — every SIP, top-up and redemption — along with the dates on which they happened. It is the most accurate way to understand your true mutual fund returns, especially when you invest via SIPs.
So, what exactly is XIRR?
XIRR is a formula that answers this question: “At what annual rate did my investment grow, considering all the dates and amounts of my investments and withdrawals?” It extends the normal IRR concept to irregular cash flows, which is exactly how most mutual fund investments work.
Works with irregular SIPs
You may invest ₹5,000 this month, ₹7,000 three months later, skip a few instalments and redeem some units. XIRR handles all of this cleanly.
Real-life investing patternAnnualised return
XIRR gives you a per-year return number. That makes it easy to compare across funds, FDs, PPF, NPS and other products.
Apple-to-apple comparisonUsed by analysts & advisors
Professionals rely on XIRR to judge the quality of a portfolio or a strategy because it respects the timing of every rupee invested.
Industry standard metricWhy XIRR matters for your mutual fund decisions
Looking only at “total profit” or simple percentage change can be misleading when money moved in and out at different times. XIRR gives you a clear, time-adjusted picture so you don’t overestimate or underestimate your returns.
1. SIPs vs lump sum – fair comparison
A lump sum invested 5 years ago and a SIP started 18 months ago cannot be compared using just “total gain”. XIRR normalises both into annual returns so you can see which truly did better.
2. Performance across funds & goals
When you have multiple funds for different goals (retirement, kids’ education, house down-payment), XIRR helps you quickly see which portfolio is compounding well and which needs attention.
• You invest ₹5,000 every month for 2 years.
• You occasionally add an extra lump sum of ₹10,000.
• At the end, your value is ₹1,60,000.
XIRR takes every instalment date and amount, plus the final value, and solves for a single annual return number (say, for example, 11.8% per annum). That is your real performance, not just “amount invested vs amount today”.
XIRR vs CAGR vs Absolute Return
Absolute Return
(Current Value – Invested Amount) / Invested Amount.
Ignores how long you stayed invested and when money went in/out. OK for a
quick view, not great for decisions.
CAGR
Assumes one-time investment and one-time final value. Works well for lump sum investments held continuously, but not designed for SIPs or irregular flows.
XIRR
Handles multiple investments and withdrawals on different dates, and gives you an annualised return. This is what you should rely on for mutual fund SIPs.