Measuring Mutual Fund Returns CAGR, XIRR & Absolute Returns

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Compound Annual Growth Rate and XIRR are the two most commonly used metrics for mutual fund returns. When many transactions are occurring at various points in time, the XIRR formula is used to determine investment returns. XIRR stands for Extended Internal Rate of Return, a method used to calculate returns on investments. XIRR meaning in mutual fund is to calculate ROI where there are multiple transactions taking place in different times. XIRR is that single rate of return, which would give the current value of investment when applied to every installment .XIRR is your personal rate of return.

Why is Xirr higher than IRR?

With XIRR, we provide the dates for cash outflow and inflow, so this is where XIRR is better than the IRR function because it considers scheduled cash flows. Since IRR does not consider dates of cash flows; you may not get accurate details unless cash flows are at the same periods.

The table below shows the monthly rolling returns for 1-month, 3-months and 5-months for Mutual Fund for a 13-month period starting from 1 Jan 2015 to 1 Jan 2016. CAGR of 2.907% shows that the fund grew at the rate of 2.907% over the one year. But, the rolling returns present a different picture altogether by highlighting that the fund fared poorly regarding consistency. It generated more negative returns as compared to the positive returns and hence carries a greater risk of loss. Unlike point-to-point return, it helps to assess the consistency of the fund.

What is the Importance of XIRR in a Mutual Fund?

Similarly, if you choose the “One-Time ” option from the dropdown, the return reflected will be CAGR returns. We are glad to know that you rate our platform so highly. We will keep coming with more blogs to explain finance in a simple manner. A FREE assessment that tells you what kind of investor you are, your risk tolerance levels, and a lot more. Extended Internal Rate of Return takes this into account.

  • Remember to include the ‘minus’ sign whenever you invest money.
  • It is not a very useful metric since it doesn’t tell you the rate of growth since time is not of importance while calculating absolute return.
  • You may calculate CAGR using the ClearTax CAGR Calculator.
  • If you have invested a lump-sum in a single product or stock and want to calculate the growth rate after, say, 2 years or 5 years, or 7.5 years, CAGR will be better for you.
  • For that, you require means to measure its performance over a given period.
  • For multiple cash inflows and outflows, both XIRR and CAGR will be different.

How to calculate the overall return on this investment made over 12 months? Instead of doing that, one can use the XIRR function trading house of excel that takes into account all these CAGRs to give the overall CAGR. XIRR, IRR, and CAGR can be quite confusing at times.


Annualised returns signify the return rate an investor earns for a given period, considering the annual compounding of returns. This provides clarity on how the investment would perform without focusing on the market volatility of markets. But keep in mind that CAGR is effective for lump-sum investments only.

It allows you to decide if the investment yields a significant return over time. In a nutshell, an investor should look at XIRR when there are multiple cash flows and returns generated. But in case of point to point investment, CAGR can also be looked at since the XIRR too will remain the same. XIRR helps you understand the annual growth rate of a bunch of cashflows which is what a mutual fund SIP is – a cash outflow when you invest and a cash inflow when you redeem. XIRR works much better for calculating returns from your mutual fund as compared to IRR and CAGR.

What is XIRR in Mutual Funds?

XIRR is important in mutual fund investment because investors can use this formula in an excel sheet and put data of uneven cash flow intervals and get correct results. Photo by Mikhail Nilov on PexelsAfter learning about what XIRR means in mutual funds, let us go over the basics of XIRR Calculator. A calculated annualized return on investment determines how much funds you’ll earn on investment annually. There are several investments and multiple purchase prices to deal with, along with different timeframes for each payment in a SIP, calculating returns is a little trickier. Returns on mutual fund SIPs are often stated in terms of XIRR.

Measuring Mutual Fund Returns CAGR, XIRR & Absolute Returns

And IRR is used for investments in case of cash flows that are equally spaced in time, but usually, investments are not as evenly spaced as you saw above in case of mutual funds. In the case of SIP, since there are multiple investments and different time periods for each installment, calculating returns is a bit tricky. Returns on mutual fund SIP is commonly done in terms of XIRR.

How to Use the ClearTax CAGR Calculator?

With multiple cash flows, the IRR or XIRR approach is usually considered to be better than CAGR. Investors should understand how investment returns are calculated and which return to consider for making investment decisions. Awareness and knowledge about calculating the returns from investment is important to be a smart investor. Investors can use two methods, namely (CAGR- Compound Annual Growth Rate) and XIRR . The CAGR method doesnot allows calculating returns for multiple cash flows. However, by following the XIRR method, one can easily calculate mutual fund returns for multiple cash flows.

Suppose you start an SIP in a mutual fund scheme at Rs 500 for 12 months. You may consider calculating the CAGR of your SIP investments in mutual funds. Whether you are judging and selecting an investment based on its return, or checking how an investment is performing, knowledge of the rate of return is important.

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