XIRR vs CAGR: Calculate Your True Mutual Fund Returns
Quick summary
- Use CAGR if you invested all your money at once (lump sum) and want to measure steady yearly growth from start to finish. It's also the standard metric for comparing fund performance across schemes.
- Use XIRR if you invested in parts: SIP, Step-Up SIP, SWP, or multiple dates. It accounts for the exact timing of every transaction and gives you your personal return.
- Use Realized XIRR if you want to know what actually hits your bank after exit loads, taxes, and charges. This is the only number that matters for goal planning.
- If your XIRR looks negative in the first 1–3 years, don't panic. It's highly sensitive to recent installments and short-term market moves. Give it time.
XIRR vs CAGR at a glance
Think of these three metrics as different lenses for looking at the same photograph. None of them is wrong. They're just showing you different things.
| Metric | What it measures | Best used when |
|---|---|---|
| Absolute Return | Total growth, ignores time | Quick first look at any investment |
| CAGR | Average yearly growth rate, assumes a single investment | You invested a lump sum once and want to know the yearly growth rate |
| XIRR | Your personal return, accounting for every payment and the exact date you made it | You invest monthly through SIP, SWP, Step-up SIP, or made multiple investments at different times |
A simple way to remember the XIRR vs CAGR difference:
- CAGR: "What was my mutual fund's yearly growth rate?"
- XIRR: "What was my real return, given when I actually invested?"
All about CAGR
What is CAGR (Compound Annual Growth Rate)?
CAGR answers one question: if my investment grew at the same rate every year, what would that rate be?
It is the number mutual fund houses use to show you how a scheme has performed over 1, 3, or 5 years. When you see "5-year returns: 14.2%" on a mutual fund page, that's CAGR.
Formula: CAGR = (Ending Value / Beginning Value) ^ (1 / n) − 1, where n = number of years
Example: Put in ₹1,20,000 five years ago. It is worth ₹1,80,000 today. That works out to 8.45% per year. That is your CAGR.
Where CAGR works best
CAGR is the right metric when you want to compare mutual fund performance fairly. Because it uses only start value, end value, and time, it puts every fund on equal footing regardless of size. Use it to:
- Compare two mutual funds over the same time period (3-year CAGR vs 3-year CAGR)
- Track how a lump sum investment grew year on year
- Evaluate a mutual fund's historical performance before you invest
SEBI's rule on CAGR: SEBI mandates that all mutual funds use CAGR for any return shown beyond one year (SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2021/024). This stops funds from showing inflated numbers based on short good periods.
Where CAGR falls short
CAGR only needs two numbers: where you started and where you ended. It assumes all your money was invested on day one and sat untouched. That works for a fixed deposit. It does not work for a SIP. With a SIP, you're adding money every month, at different market prices, over years.
This is the core of the XIRR vs CAGR difference. If you use CAGR to judge your SIP returns, you'll almost always see a higher number than what you actually earned. That's not your mutual fund lying to you. It's just the wrong tool for the job.
Smart Investor Tip: The return your fund shows is its CAGR. But as a SIP investor, your personal return will almost always be different. You did not invest everything on day one.
How to calculate CAGR in Excel or Google Sheets
You only need three numbers: starting value, ending value, and the number of years.
Step 1: Set up your data
| Cell | What to enter | Example |
|---|---|---|
| A1 | Starting value (₹) | 1,20,000 |
| A2 | Ending value (₹) | 1,80,000 |
| A3 | Number of years | 5 |
Step 2: Apply the formula
Type =(A2/A1)^(1/A3)-1 and format the result as a percentage. That is your CAGR.
Real example: Arjun's lump sum
Arjun invested ₹1,20,000 five years ago. His fund is now worth ₹1,80,000.
| Value | |
|---|---|
| Starting value | ₹1,20,000 |
| Ending value | ₹1,80,000 |
| Years | 5 |
| CAGR | 8.45% per year |
This means his investment grew at an average of 8.45% every year, even if some years were better and some were worse. CAGR smooths all of that into one number.
When comparing CAGRs across funds, always use the same time period. A fund's 3-year CAGR and another fund's 5-year CAGR are not comparable. Same period, same category. That's the only fair comparison.
What is a good CAGR? Benchmarks to know
When you're evaluating whether a mutual fund is worth investing in, CAGR is the standard benchmark tool. Here's what to look for across mutual fund categories over a 5-year period.
| Fund category | Average market CAGR (5yr) | Decent | Good |
|---|---|---|---|
| Large Cap Equity | 12–14% | 10–12% | 14%+ |
| Mid/Small Cap Equity | 14–18% | 12–14% | 18%+ |
| Flexi Cap / Diversified | 12–15% | 10–13% | 15%+ |
| Hybrid / Balanced | 9–11% | 8–10% | 11%+ |
| Debt Funds | 6–7% | 5–6% | 7%+ |
Always compare a fund's CAGR against its benchmark index, not against another fund in a different category. A large cap fund beating the Nifty 50 CAGR over 5 years is a genuinely good sign. A large cap fund with 12% CAGR compared to a small cap fund with 18% CAGR is comparing apples to mangoes.
When CAGR can mislead you
Volatile funds with a lucky end date. CAGR only looks at where you started and where you ended. If a fund had a terrible 4 years and then recovered sharply in year 5, the CAGR will look great, even though the actual journey was rough. Always look at rolling returns alongside CAGR to get the full picture.
Comparing funds with different time periods. A fund showing 18% CAGR over 2 years is not necessarily better than one showing 14% CAGR over 7 years. A 7-year CAGR has been through ups, downs, and recoveries. The longer the track record, the more confidence you can have that the returns reflect the fund, not just the market.
Using CAGR for your SIP. This is the most common mistake. If your SIP is 5 years old, the fund's 5-year CAGR assumes you invested everything in month one. You didn't. Your actual return will be lower because your later instalments had less time to grow. Use XIRR for your SIP. Always.
All about XIRR
What is XIRR (Extended Internal Rate of Return)?
XIRR is your personal return calculator. It looks at every payment you made, on the exact date you made it, and gives you one honest number.
Imagine you started a ₹5,000 SIP in January 2020. Your first payment has been growing for 5 years. Your last payment last month has been growing for just 30 days. CAGR cannot handle that. XIRR can.
XIRR finds the single annual rate at which the present value of all your investments equals the current portfolio value. It gives every rupee its own weight based on how long it was actually invested, and rolls it all into one return figure that reflects your real experience.
Smart Investor Tip: This is the heart of the XIRR vs CAGR difference. CAGR tells you how a mutual fund performed. XIRR tells you how *you* performed in that fund. These two numbers can be very different depending on when you started investing.
Where XIRR works best
XIRR is the right metric any time money moves in or out at different times. Use it to:
- Track your personal SIP returns accurately
- Measure your total portfolio return across multiple funds
- Evaluate what you actually earned after partial withdrawals or step-ups
- Compare whether your direct plan is genuinely outperforming the regular plan
| Investment type | How XIRR handles it |
|---|---|
| Step-Up SIP | Enter each changed amount with its date. XIRR handles it. |
| SWP (Systematic Withdrawal Plan) | Each withdrawal goes in as a positive number. One clean return figure covers deposits and withdrawals together. |
| Lump Sum + SIP combo | Add the lump sum as a separate row. XIRR accounts for both. |
| Multiple funds | Put all transactions in one table. XIRR treats it as a single portfolio and gives you one return. |
| STP (Systematic Transfer Plan) | Each transfer counts as a cash flow. XIRR captures the return on each leg accurately. |
Where XIRR falls short
XIRR is very sensitive to recent activity. If you have just started investing or the market dipped recently, XIRR will project that short-term move across a full year and the number can look alarming. It is not wrong. It is just not yet stable. Before 3 years, XIRR is more noisy than signal. After 5 years, it is one of the most reliable numbers you have.
Why two investors in the same fund can have very different XIRRs
Same fund. Same monthly SIP amount. Completely different returns. How?
| Priya | Rohit | |
|---|---|---|
| SIP start date | January 2020 (pre-COVID crash) | January 2022 (market at peak) |
| Monthly SIP | ₹10,000 | ₹10,000 |
| Fund's CAGR (3yr) | 14.2% | 14.2% |
| Personal XIRR | 17.8% ✔ | 9.1% ⚠ |
The fund's benchmark, the Nifty 50, returned 12.8% over the same 3-year period. The fund genuinely outperformed. But Rohit's personal XIRR of 9.1% sits below both the fund's CAGR and the benchmark, purely because of when he started.
Priya started just before COVID. When the market crashed, she kept investing and picked up units at low prices. By the time the market recovered, those units had grown significantly.
Rohit started in 2022 when the market was already high. His early units were expensive. When the market corrected after that, his returns took a hit.
Same mutual fund. Same CAGR. But very different personal experiences.
How to calculate XIRR in Excel or Google Sheets
You don't need to understand the math. Excel and Google Sheets do it for you. You just need two columns of data.
Step 1: List your transactions
Every amount you invested goes in as a negative number. Your current portfolio value goes in as a positive number on today's date.
| Row | Column A: Date | Column B: Amount (₹) | What this represents |
|---|---|---|---|
| 1 | 01-01-2023 | -50,000 | Lump sum investment |
| 2 | 01-02-2023 | -5,000 | Monthly SIP |
| 3 | 01-03-2023 | -5,000 | Monthly SIP |
| 4 | 01-04-2023 | -5,000 | Monthly SIP |
| 5 | 01-04-2023 | +75,200 | Current portfolio value |
| 6 | Result | `=XIRR(B1:B5, A1:A5)` | Your annualised return |
Step 2: Apply the formula
Type `=XIRR(Values, Dates)` and format the result as a percentage. That number is your personal annualised return.
Real example: Neha's 5-year SIP
Neha invested ₹5,000 every month for 5 years. Same portfolio, three different numbers depending on how you measure it.
| Absolute Return | CAGR (Fund) | XIRR (Neha's) | |
|---|---|---|---|
| Total invested | ₹3,00,000 | ₹3,00,000 | ₹3,00,000 |
| Current value | ₹4,80,000 | ₹4,80,000 | ₹4,80,000 |
| Return shown | 60% | 15.2% | 11.8% |
| Why different? | Ignores time entirely | Assumes all ₹3L went in on Day 1 | Weights each ₹5,000 by when it was actually invested |
The fund shows 15.2% because it assumes everything was invested on day one. Neha's real XIRR is 11.8% because her last 12 months of SIPs barely had time to grow. Neither number is wrong. They're just answering different questions.
What is a good XIRR? Benchmarks to know
| Fund category | Decent | Good | Excellent |
|---|---|---|---|
| Large Cap Equity | 9–11% | 12–14% | 14%+ |
| Mid/Small Cap Equity | 11–13% | 14–17% | 17%+ |
| Flexi Cap / Diversified | 10–12% | 12–15% | 15%+ |
| Hybrid / Balanced | 7–9% | 9–11% | 11%+ |
| Debt Funds | 5–6% | 6–8% | 8%+ |
| Inflation (CPI) | 5–6% | Beat this as a minimum |
For most equity mutual fund investors with a 5-year horizon, an XIRR between 12% and 15% is a healthy target. Anything above 15% over 7+ years is excellent by any standard.
Smart Investor Tip: Don't compare your XIRR with a friend's. Your start date, fund choice, and market conditions are all different. Instead, compare your XIRR against your fund's benchmark index over the same period.
When XIRR goes negative: what it means and when to act
If you're a new investor and your XIRR shows a negative number, take a breath. It does not mean you're losing money.
XIRR is an annualised rate. It takes whatever has happened to your portfolio recently and projects it across a full year. So if your SIP is new and the market dips, that short-term move gets stretched into a large-looking annual number.
| Investment duration | Which return to read |
|---|---|
| Under 6 months | Absolute Return only |
| 6 to 12 months | Absolute Return and XIRR together |
| Over 1 year | XIRR becomes the primary number |
If your investment is under a year old, always look at Absolute Return first. XIRR only tells a reliable story once enough installments have accumulated.
Taxes and what they do to your XIRR
The return your app shows is before tax and before any charges. The money that actually lands in your bank is always a little less.
1. Exit load — Most equity funds charge 1% if you redeem within a year of purchase. On a 5-year SIP, your last 12 months of payments can still attract this charge.
2. Capital gains tax
For equity mutual funds and hybrid mutual funds where equity makes up more than 65% of the portfolio:
| Holding period | Type | Tax rate | Threshold |
|---|---|---|---|
| Less than 12 months | STCG | 20% | No exemption |
| More than 12 months | LTCG | 12.5% | Exempt up to ₹1.25 lakh |
For debt mutual funds purchased on or after April 1, 2023: all gains are added to your total income and taxed at your applicable slab rate, regardless of holding period.
3. FIFO rule — When you redeem, India's tax rules assume your oldest units are sold first. This usually works in your favour since older units qualify for the lower LTCG rate.
4. DP charges — A small flat fee of around ₹15–₹20 per transaction charged by your broker.
Realized XIRR: the number that actually matters
Realized XIRR is the return that actually reaches your bank account after taxes, exit loads, and transaction charges are deducted. It is different from the market XIRR your app shows.
Net Redemption Value = Current Value − (Exit Load + Tax + DP Charges)
| Amount | |
|---|---|
| Portfolio value | ₹5,00,000 |
| Exit load | ₹2,800 |
| LTCG tax | ₹20,000 |
| DP charges | ₹20 |
| Net Redemption Value | ₹4,77,180 |
| App XIRR | 15.3% |
| Realized XIRR | 12.7% |
That 2.6% gap is what your investment actually cost you. For long-term goal planning, always use Realized XIRR. Not the number your app shows.
Note on timing: When you redeem your investment, the money arrives in your bank one working day later (T+1 settlement). For an accurate XIRR, use the date the money actually arrives — not the day you placed the order.
Frequently asked questions
What is CAGR full form?
CAGR stands for Compound Annual Growth Rate. It measures the average yearly growth rate of an investment assuming it grew at a steady, compounded rate from start to finish.
Is CAGR the same as annual return?
Not exactly. Annual return tells you what happened in one specific year. CAGR smooths out all the ups and downs across multiple years and gives you a single average yearly rate. Over short periods they can look similar. Over longer periods, CAGR is far more useful.
Can CAGR be used for SIPs?
Not accurately. CAGR assumes you invested a single lump sum on day one. With a SIP, you invest every month at different prices. Using CAGR for a SIP will almost always show you a higher return than you actually earned. Use XIRR instead.
Why does my fund's CAGR look higher than my personal return?
Because your fund's CAGR assumes every rupee was invested at the very beginning. Your returns depend on when each SIP was actually made. If you started recently or invested more in the later months, your personal return will be lower than the fund's CAGR. This is expected, not a problem with the fund.
What is XIRR full form?
XIRR stands for Extended Internal Rate of Return. It calculates the yearly return on investments where money goes in or comes out at different times, like a monthly SIP.
Can XIRR be negative?
Yes. XIRR goes negative when your portfolio's current value is below the total amount you have invested. For newer SIPs, even a small market dip can trigger this because XIRR is annualised and weights recent installments heavily. It stabilises as the investment matures.
Is 15% XIRR good?
Yes. For a diversified equity fund held for 5+ years, 15% is excellent. It beats inflation comfortably and outperforms most fixed-income alternatives. Context matters though — 15% over 1 year is less meaningful than 15% over 7 years.
Why is XIRR better than CAGR for SIPs?
CAGR works only if you invested everything on one day. With SIPs, you invest a little every month. XIRR accounts for each payment and the exact date you made it, giving you a return that actually reflects your experience.
Does the XIRR on my app include taxes?
No. What your app shows is before tax and before any charges. Your actual take-home return will be lower once you account for capital gains tax, exit loads, and DP charges. That's your Realized XIRR.
My portfolio is up but my XIRR is negative. How?
This usually happens when you invested recently or just before a market dip. XIRR projects that short-term drop over a full year, which makes it look much worse than it is. It's a timing effect, not a sign that something is wrong with your fund.
My XIRR is lower than my friend's in the same fund. Who's doing better?
You can't fairly compare. You both started at different times and at different market levels. Compare your XIRR against your fund's benchmark index instead.
What is the difference between Market XIRR and Realized XIRR?
Market XIRR is what your app shows, assuming you redeem today at current value. Realized XIRR is what actually hits your bank after taxes, exit loads, and DP charges are deducted. Realized XIRR is the number that truly matters for goal planning.
How is XIRR different from IRR?
IRR assumes your payments happen on perfectly fixed dates every time. XIRR works with any dates, including weekends, holidays, or irregular payments. For SIPs, always use XIRR.
Can I use XIRR to compare my direct and regular plan?
Yes, and it's the most accurate way to do it. Run both in the same Excel sheet with the same transaction dates and amounts, but use each plan's respective current NAV as the final value. The XIRR difference shows you the real cost of the commission over time.
Disclaimer: This article is for educational purposes only and does not constitute financial or investment advice. Tax rates are based on the post-Budget 2024 regime and may change. The SEBI circular referenced is SEBI/HO/IMD/DF2/CIR/P/2021/024. Please consult a SEBI-registered financial advisor before making investment decisions.
