XIRR - Meaning, Formula, Calculation, and XIRR vs CAGR

In summary

XIRR is useful for measuring the return on investments involving multiple or irregular cash flows.

• XIRR considers both the amount and date of each cash flow.
• It is particularly useful for SIPs and periodic withdrawals.
• Excel and Google Sheets provide an inbuilt XIRR function.
• Investment outflows are entered as negative cash flows.
• Redemptions and current holdings are entered as positive cash flows.
• XIRR and CAGR serve different purposes.

XIRR can provide a more relevant annualised return measure for a personal investment with multiple transactions. However, it does not measure risk, predict future returns, or establish whether an investment is suitable.

XIRR stands for Extended Internal Rate of Return. It is a return metric used when an investment has multiple cash inflows and outflows occurring on different dates.

For a mutual fund SIP, for example, each instalment is invested on a different date. The first instalment may remain invested for several years, while the most recent instalment may have been invested only recently. XIRR accounts for this difference in investment duration.

Mathematically, XIRR is the annualised rate that makes the net present value of all dated cash flows equal to zero.

This makes it useful for analysing personal investment performance when the cash flows are not limited to one initial investment and one final value.

XIRR is particularly useful when your mutual fund investment involves multiple transactions.

SIP investments

Each SIP instalment represents a separate cash outflow on a particular date. XIRR considers these dates when calculating the annualised return.

For example, Rs. 10,000 invested today and Rs. 10,000 invested one year later have different investment periods. Treating both amounts as though they were invested on the same date would not accurately represent the investor's experience.

Additional investments

XIRR can also accommodate top-ups or additional lumpsum investments made after the initial investment.

Withdrawals and redemptions

Redemptions are cash inflows to the investor and therefore form part of the XIRR calculation. This makes XIRR useful for investments involving partial withdrawals or multiple redemptions.

For example, investors using a Systematic Withdrawal Plan can use XIRR to evaluate the return across their investment and withdrawal cash flows.

Current value of an investment

If you have not fully redeemed an investment, its current value can be treated as a positive cash flow on the valuation date. This allows XIRR to measure the return earned up to that date.

XIRR calculates the annualised rate that equates the present value of all cash inflows and outflows to zero.

The formula is:

Σ [Ci ÷ (1 + r)^((Di − D0) / 365)] = 0

Where:

• Ci = Amount of each cash flow.
• r = XIRR, expressed as an annual rate.
• Di = Date of the individual cash flow.
• D0 = Date of the first cash flow.

The 365-day convention allows the calculation to account for the actual number of days between transactions rather than assuming that every cash flow occurs at equal intervals.

You generally do not need to solve this equation manually because spreadsheet software can calculate the result.

Excel and Google Sheets have an inbuilt XIRR function.

The basic syntax is:

=XIRR(values, dates, [guess])

The values range contains the cash flows, while dates contains the corresponding transaction dates. The optional guess is an initial estimate that can help the calculation converge in some cases.

Step 1: Enter the transaction dates

Enter every relevant investment, withdrawal, dividend, or other actual cash flow in chronological order.

Step 2: Enter the cash flows

Use the correct sign convention:

• Investment outflows: Enter as negative values.
• Redemptions: Enter as positive values.
• Withdrawals received: Enter as positive values.
• Dividends actually received: Enter as positive values.
• Current value of units held: Enter as a positive value on the valuation date.

For example:

Last updated: September 2026

The final positive amount represents the value realised or, where the investment remains invested, the current value on the valuation date.

Step 3: Apply the XIRR function

If the cash flows are in cells B2 and dates are in A2, enter:

=XIRR(B2:B6,A2:A6)

Excel returns the annualised XIRR based on those cash flows and dates.

The accuracy of XIRR depends on the quality and completeness of the cash-flow data.

Include actual cash movements

Include transactions that actually move money into or out of the investment.

For example, SIP instalments, lumpsum purchases, redemptions, SWP payments, and dividends actually received should be considered where relevant.

Include the current value

If you are calculating the return on an investment that has not been completely redeemed, include its current value as a positive cash flow using the appropriate valuation date.

Treat non-cash transactions carefully

A dividend reinvestment does not create an external cash flow if the dividend is immediately reinvested. Including it as though cash had been received and then invested can distort the calculation.

Similarly, switches between mutual fund schemes need careful treatment depending on whether you are calculating XIRR for an individual scheme or for the overall portfolio.

Suppose an investor makes six monthly SIP instalments of Rs. 5,000 and subsequently redeems the investment for Rs. 31,000.

The cash-flow sequence is:

Last updated: September 2026

The XIRR function uses both the amounts and the exact dates to calculate the annualised return. The result is not simply the Rs. 1,000 difference divided by the Rs. 30,000 invested because each Rs. 5,000 instalment was invested for a different length of time.

The example demonstrates why XIRR is more informative than a simple total-return calculation when the investment involves multiple dated cash flows.

XIRR and CAGR both express returns as an annualised percentage, but they are designed for different cash-flow patterns.

Last updated: September 2026

For example, CAGR can be appropriate for measuring the annualised growth of a Rs. 1 lakh lumpsum investment over a defined period. XIRR is more appropriate when that Rs. 1 lakh was invested through several transactions on different dates.

Read more in details about t the difference between CAGR and XIRR 

No. XIRR and CAGR are not competing versions of the same calculation.

CAGR is useful when the investment has a clearly defined beginning value, ending value, and investment period. XIRR is useful when there are multiple cash flows on different dates.

Using XIRR for a simple single-investment scenario can add unnecessary complexity, while using CAGR for an SIP can ignore the timing of individual instalments.

The appropriate metric therefore depends on the cash-flow pattern.

There is no universal XIRR percentage that can be labelled “good” for every mutual fund investment.

An appropriate reference point depends on factors such as:

• Investment type: Equity, debt, hybrid, and other investments have different risk and return characteristics.
• Investment period: A short measurement period can produce a very different result from a multi-year period.
• Market conditions: Market movements affect realised returns.
• Risk level: Higher return potential can be associated with higher investment risk.
• Benchmark: Comparing against the relevant benchmark can provide useful context.
• Investment objective: A return should be assessed against the investor's financial goal rather than a fixed percentage.

A positive XIRR indicates that, based on the specified cash flows and dates, the investment has generated a positive annualised return.

A negative XIRR indicates that the investment's current value and realised proceeds are insufficient to produce a positive annualised return over the period considered.

However, the sign alone does not explain why the investment performed that way.

For example, a recently started SIP can show a negative XIRR during a market decline even though the investment has a long intended holding period. Conversely, a very high XIRR over a short period may not be representative of long-term performance.

XIRR should therefore be interpreted alongside the investment period, benchmark, market conditions, and risk.

XIRR is useful, but it has limitations.

It depends on accurate data

Incorrect dates, missing transactions, wrong signs, or an incorrect current valuation can produce a misleading result.

Short periods can be misleading

XIRR annualises the return. A relatively small gain or loss over a short period can therefore translate into a seemingly large annualised percentage.

It does not measure risk

XIRR tells you the annualised return implied by the cash flows. It does not measure volatility, drawdown, liquidity, credit risk, or other investment risks.

It does not predict future returns

A historical XIRR is a measure of past performance based on the specified cash flows. It does not forecast the future performance of the investment.

It should not be the only comparison

Two investments can have similar XIRRs while having materially different levels of risk, volatility, liquidity, or portfolio composition.

Yes. SIPs are one of the most common situations where XIRR is useful because each instalment is invested on a different date.

For instance, an investor contributing Rs. 10,000 each month for five years has 60 separate investment cash flows. Each instalment has a different investment period.

XIRR uses the date and amount of every instalment and the current value or redemption proceeds to calculate one annualised return for the investment history.

This is different from simply calculating the percentage increase between the total amount invested and current value.

You can also use the SIP calculator from Bajaj Finance to model prospective SIP scenarios. A calculator's projected return is based on assumptions and is not the same as the historical XIRR of an actual investment.

XIRR measures annualised investment returns while accounting for the amount and timing of multiple cash flows. This makes it particularly useful for SIPs, top-ups, withdrawals, and investments with irregular transactions.

XIRR should not be treated as a prediction, risk measure, or universal benchmark for what constitutes a good return. Use it alongside CAGR where appropriate, benchmark performance, investment risk, costs, and your financial objectives.

Last reviewed: September 2026

Mutual funds are subject to market risk. Please read the scheme-related documents carefully before investing.