XIRR vs CAGR: what is the difference?
Part 3 of 3 in Investing and SIP
Updated 24 October 2026 · यह गाइड हिन्दी में पढ़ें →
Open a mutual fund statement and the return you see is usually called XIRR. Read a scheme's factsheet and its returns over several years are given as CAGR. Both are yearly rates, and for a single lumpsum they come out the same. For a SIP they do not, and using the wrong one can make the same result look much better or much worse than it was.
CAGR: one amount in, one amount out
CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1
CAGR, the compound annual growth rate, is the steady yearly rate that would turn the starting amount into the ending amount over the period. It needs exactly one amount going in at the start and one value at the end. Money added or taken out in between breaks it.
XIRR: many amounts on many dates
XIRR, short for extended internal rate of return, handles any number of amounts on any dates. It finds the one yearly rate at which all your instalments, each growing for exactly as many days as it was invested, would add up to today's value.
There is no neat formula for doing this by hand. Spreadsheets find the rate by trial and error, and fund statements do the same.
A lumpsum: the two agree
You invest ₹1,00,000 on 1 January 2023, and it is worth ₹1,40,000 on 1 January 2026.
- CAGR = (1,40,000 ÷ 1,00,000)^(1 ÷ 3) − 1 = 1.4^(1/3) − 1 = 11.87% a year
- XIRR = 11.86% a year
The tiny gap is the calendar. XIRR counts days and treats 365 days as a year, and these three years had 1,096 days because 2024 had a 29 February. For one amount in and one out, XIRR and CAGR are the same idea.
A SIP: the two part ways
Now a SIP of ₹10,000 on the 5th of every month from January to December 2025: 12 instalments, ₹1,20,000 in all. On 5 January 2026 the holding is worth ₹1,30,000.
- Absolute return = (1,30,000 − 1,20,000) ÷ 1,20,000 = 8.33%
- XIRR = 15.67% a year
Why is the XIRR nearly double? Because most of the money was not invested for a whole year. The first ₹10,000 was in for 12 months and the last for one month; on average, each rupee was in for about six and a half months. A gain of 8.33% in about six and a half months works out to roughly 15 to 16% a year, and XIRR, counting every instalment's own days, puts it at 15.67%.
The common mistake is to treat the SIP as one lumpsum: "₹1,20,000 became ₹1,30,000 in a year, so the CAGR is 8.33%". That counts the December instalment as if it had been invested since January, and understates the yearly rate.
Here is how the XIRR moves with the final value, for the same 12 instalments:
| Value on 5 Jan 2026 | Absolute return | XIRR |
|---|---|---|
| ₹1,25,000 | 4.17% | 7.75% |
| ₹1,28,000 | 6.67% | 12.48% |
| ₹1,30,000 | 8.33% | 15.67% |
Short periods give wild numbers
Both XIRR and CAGR turn a result into a yearly rate, and over short periods that makes small moves look huge. A gain of 3% in one month, from 1 January to 1 February 2026, is an XIRR of 41.63% a year. The money did not earn 41.63%. It earned 3%, and the formula assumed the same pace for twelve months. A SIP only a few months old often shows an XIRR like this, very high or very low. Give it a few years before you read much into it.
Working out XIRR in a spreadsheet
Excel and Google Sheets both have an XIRR function.
- In one column, list every instalment as a negative number, since the money left your pocket. Put the current value at the end as a positive number.
- In the next column, put the date of each one.
- Type =XIRR(values, dates), selecting the two columns, and show the result as a percentage.
For the SIP above, that is twelve rows of −10,000, dated the 5th of each month in 2025, and one row of 1,30,000 dated 5 January 2026. The answer is 15.67%. Money you take out along the way, such as SWP instalments, goes in as positive numbers on their dates.
Which one to use
| Your money | Use |
|---|---|
| One amount invested, nothing added or taken out | CAGR, or XIRR, which gives the same rate |
| A SIP, a step-up SIP, or top-ups at different times | XIRR |
| Withdrawals along the way, such as an SWP | XIRR |
What both leave out
Both describe what already happened. Neither says anything about next year: a 15% XIRR over the past three years does not make 15% likely over the next three. Both hide the ride, since the same rate can come from a steady climb or from a fall and a recovery. And both are before tax, unless you put the tax in yourself. A scheme's expense ratio is already taken out of its NAV, so it is already inside both numbers.
Work out a CAGR with the CAGR calculator. To see how a SIP adds up at a return you assume, use the SIP calculator, and for the two ways of investing side by side, read SIP vs lumpsum.
Questions people ask
- Why is my SIP’s XIRR higher than its absolute return?
- XIRR is a yearly rate, and most SIP money has been invested for less than the full period. A gain earned over a few months works out to a higher yearly rate.
- Can XIRR be negative?
- Yes. If the current value is below what you put in, the XIRR is negative. Over short periods it can look very negative, just as a small gain can look very large.
- Is XIRR the same as CAGR?
- For one amount in and one amount out they give the same rate, apart from a small difference from counting days. With several amounts on different dates, only XIRR gives a meaningful yearly rate.
- What is a good XIRR?
- There is no single answer, and this site does not suggest one. Compare like with like: the same kind of scheme over the same years. XIRR describes the past and does not predict the next year.
Sources
- Microsoft Support: the XIRR function in Excel
- AMFI (Association of Mutual Funds in India)
- SEBI investor website