XIRR in Mutual Funds – Easy Guide for Beginners
When you start investing in mutual funds, especially through SIP (Systematic Investment Plan), you’ll often come across a term called XIRR. If you’re wondering what it is, don’t worry — you’re not alone!
Let’s break it down in the simplest way possible.
✅ What is XIRR?
XIRR stands for Extended Internal Rate of Return. It is a method used to calculate the actual returns of your SIP investments, where the investment amounts and dates are not the same.
Think of it like this:
You invest ₹5,000 every month
Over 3 years, this adds up to ₹1.8 lakh
But your return is not just based on ₹1.8 lakh – because each ₹5,000 stayed invested for a different time
XIRR calculates your overall annual return, considering all this
📈 Why is XIRR Used?
Normal returns (absolute return or CAGR) don’t consider irregular cash flows. Since SIP investments are made monthly, XIRR helps to calculate the realistic return.
For example:
SIP of ₹5,000/month for 3 years
Final value: ₹2,25,000
XIRR may show 13.5% annual return
This means your money grew at a rate of 13.5% per year
🧮 How to Calculate XIRR?
You can calculate XIRR using:
1. Excel/Google Sheets
2. Mutual Fund Apps (like Groww, Zerodha Coin, ET Money)
In Excel:
Column A: Date of each SIP
Column B: Investment amount (in minus)
Last row: Redemption amount (positive)
Formula: =XIRR(values, dates)
🧠 Important Notes
XIRR is useful when there are multiple transactions (SIP, top-ups, withdrawals)
It shows annualized returns, not total returns
Don’t confuse XIRR with CAGR – CAGR is for lump sum, XIRR is for multiple cash flows
📌 Final Thoughts
Understanding XIRR gives you better control over your investments. It helps compare mutual fund performance correctly, especially if you’re investing monthly.
Always check XIRR when evaluating your SIP performance — it’s the most accurate way to know how well your money is growing!