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Mutual funds are a popular option among investors due to numerous reasons, from their potential to generate wealth to the convenience they offer. However, understanding the returns on your investment can be tricky, especially if you are unfamiliar with financial jargon. 


Terms like CAGR, XIRR, and more are commonly used when it comes to choosing mutual fund schemes. Read on to learn about XIRR in mutual funds, how to calculate it, and the reason why it is crucial. 

What is XIRR?

XIRR stands for Extended Internal Rate of Return. It is a tool that helps in understanding the current value of your SIP investment and the actual returns you have earned on it.


In comparison to Compound Annual Growth Rate (CAGR), the XIRR is more comprehensive and- reliable. CAGR considers a constant return rate for your entire investment period. This could at times give you an inaccurate rate of return for your SIP investments. 


On the other hand, XIRR takes into account multiple cash flows and the exact investment duration. It considers every inflow and outflow, be it various amounts at different prices at different times, along with the number of instalments. Thus, the XIRR formula helps you understand your real returns better.

Difference Between XIRR and CAGR

Here are a few of the points of difference between XIRR and CAGR:

Differences in




Average annualised return considering multiple investments and redemptions 

Absolute annualised return considering beginning and ending values only

Calculation factors

Cash inflow, outflow and transaction dates

Investment amount, maturity amount and tenor

Suitability of assessing returns

For SIP investment in mutual funds

For lumpsum investment in mutual funds

What is the Importance of XIRR in Mutual Funds?

Calculating returns is an important aspect of your investment journey, whether you are choosing a scheme or planning to redeem mutual fund units. While you can use CAGR for a lumpsum investment, using it for SIP can be problematic.


Unlike XIRR, this method assumes a steady rate of growth and does not make room for fluctuations. XIRR takes timing into account, as when you invest affects your returns, and assesses the returns as per the actual cash flow. 


For example, the annualised returns from your first SIP will be higher when compared to your last investment. This is because the time period of the first SIP is greater than the last one. 


As such, instead of looking at the CAGR of every instalment individually, you will have to combine the CAGR of all your SIPs and get a common CAGR. This is what the XIRR of your mutual fund investment represents. 

How to Calculate XIRR?

Calculating the XIRR is easy as there is a ready function for it in Excel. The XIRR formula in Excel is as follows:


 =XIRR (values, dates, guess)


To use this formula, follow the steps outlined below:

  • Step 1: Input your transaction values in one column (inflow in positive, outflow in negative)

  • Step 2: Type the date of your transactions in a corresponding column

  • Step 3: Enter the current value and date of your investment in the last row

  • Step 4: Use the Excel function for XIRR


Once you enter the Excel function, you will get the XIRR value automatically. 


Consider an example to better understand the calculation of XIRR. Say you start a SIP of ₹1,000 in January 2021 and liquidate it after 13 instalments. At the time of liquidation, the maturity value is ₹14,500.


Now, put these values in Excel (inflows in positive and outflows in negative) with the dates being the first of every month from January 2021 to February 2022.


After that, you can type in the function of XIRR and add *100 at the end.


The XIRR computed will be 20.11%.


Now that you know the meaning of XIRR in mutual fund schemes, remember to estimate your returns before redeeming your investment. Doing so will help ensure you apply the right strategy at the right time and make the most of your investment. 


Investing in mutual funds is easy and simple on Bajaj Markets. Following a quick online process, you can choose from top schemes, get the right information and increase your potential for secure financial growth.


What is XIRR?

XIRR in mutual fund schemes refers to an extended internal rate of return, giving you insights into the current value of your investment. With it, you can better understand your real returns as it takes into account multiple cash flows.

Is XIRR better than CAGR?

While both help you analyse the performance of your investment, XIRR factors in cash inflows as well as cash outflows based on defined timelines. So, it can be a better, more comprehensive option for understanding how your investments have fared, especially if it is via a SIP. 

Is using the XIRR formula reliable?

Yes, given that there are multiple cash flows and investment times involved, XIRR is a reliable option to get a better and more accurate look into your actual returns.

What is the difference between XIRR and CAGR?

In XIRR, the calculation considers the exact investment time and investment amount. However, in CAGR, a single rate of return is used for the investment period as a whole. As such, the figure computed as the CAGR may not always be reliable.

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