What is XIRR? A Practical Guide to Tracking SIP and Irregular Investment Returns

Understanding investment performance can become complex when contributions and withdrawals occur on different dates. While single lumpsum investments can be evaluated using straightforward compound interest formulae, staggered cash flows may require a more precise approach. This is where the metric of XIRR becomes relevant.

The following article discusses what XIRR is, how an XIRR calculator may help estimate it, and how this metric could be useful for mutual fund tracking.

What is XIRR and how does it differ from CAGR?

The XIRR full form is Extended Internal Rate of Return. It represents the annualised rate of return on your investment while accounting for the exact timing of each individual transaction. In practice, it is commonly used to evaluate returns from a Systematic Investment Plan (SIP) or from investments involving irregular contributions and withdrawals.

When understanding XIRR, it might be helpful to contrast it with CAGR (Compound Annual Growth Rate), which assumes one initial investment and one final value, spread evenly over time. CAGR is more commonly used to review lumpsum investments. However, SIP investments involve multiple instalments invested on different dates, wherein each instalment remains invested for a different duration.

An XIRR calculator adjusts for these date differences. Instead of assuming uniform timing, it computes the annualised return that equates all inflows and outflows based on their exact calendar dates. This makes it more suitable for tracking potential SIP returns, where contributions typically occur monthly and redemptions may happen at varying intervals.

Mathematical equation for XIRR

The XIRR value is derived by solving for the rate r in the following equation:

0 = ∑{i=0}^{n}[Cᵢ / (1 + r)^((dᵢ − d₀)/365)]

Where:

• Ci = each cash flow (negative for investments, positive for redemption or current value)

• di = date of each cash flow

• d0 = date of the first cash flow

• r = annualised rate of return (XIRR)

• 365 = number of days in a year used for annualisation

• n = total number of cash flows

• The summation runs from i = 0 to i = n

This equation calculates the rate that makes the Net Present Value (NPV) of all cash flows equal to zero.

Since this equation involves iterative calculations that may be hard to solve manually, XIRR is typically calculated using spreadsheet tools such as Microsoft Excel. In Excel, it can be computed using the formula =XIRR(values, dates), where values represent the cash flows and dates represent the corresponding transaction dates. Online XIRR calculators further simplify this process, requiring you to simply enter your investment amounts, instalment dates, final corpus size and withdrawal date, based on which it arrives at the annualised return figure.

Example of an XIRR calculation

Consider an investor who makes the following contributions:

Cash flows:

• 1 Jan 2022: –₹5,000

• 1 Feb 2022: –₹5,000

• 1 Mar 2022: –₹5,000

• 1 Apr 2022: –₹5,000

• 1 Jan 2024: +₹24,450

In this case, the cash flows would be recorded as negative values for each investment date and a positive value representing the portfolio valuation on 1 January 2024. When these values and dates are entered into an XIRR calculator, the computed return is approximately 12% per annum. This percentage represents the annualised rate that equates all staggered investments and the final portfolio value under the compounding framework.

Example for illustrative purposes only.

Why XIRR is deemed relevant for SIP investors

SIP investing involves periodic contributions, each with a distinct holding period. A lumpsum invested for two years may not reflect the same return structure as four separate instalments invested across that period. An XIRR calculator captures these differences by incorporating actual transaction dates into the calculation.

Interpreting XIRR cautiously

Although an XIRR calculator provides a mathematical output, it is advised to interpret it with caution. XIRR assumes reinvestment at the same rate and depends entirely on recorded cash flows and dates. If contributions are irregular or if withdrawals occur midway, the calculated return may change significantly.

Additionally, since mutual fund returns are market-linked, past XIRR values represent realised outcomes under specific conditions. They do not guarantee potential future performance. Past performance may or may not be sustained in future.

The calculator is an aid, not a prediction tool. It may provide only an indicative picture.

Conclusion

Understanding what is XIRR may help in evaluating irregular and staggered investments. Unlike simple annualised measures, XIRR accounts for the exact timing of each transaction. An XIRR calculator applies a mathematical equation to determine the annualised rate that balances all inflows and outflows.

For investors tracking SIPs or irregular investments, XIRR may provide a structured method to interpret performance. When accompanied with an understanding of its underlying assumptions, it reflects how returns were realised across specific cash flows. However, it does not guarantee how potential future outcomes may unfold under different market conditions.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Source: Bajaj Finserv Asset Management Ltd.

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Published – February 25, 2026 10:17 am IST