Table of Contents

  1. CAGR vs XIRR – Quick Summary
  2. What is CAGR?
  3. What is XIRR?
  4. Key Differences
  5. Worked Examples
  6. Why XIRR Matters for SIP Investors
  7. How to Calculate XIRR in Excel
  8. FAQs

When reviewing your investment performance, two terms dominate: CAGR (Compound Annual Growth Rate) and XIRR (Extended Internal Rate of Return). Both are annualized return metrics β€” but they’re designed for fundamentally different cash flow structures. Using the wrong one leads to misleading conclusions about how your money is actually growing.

πŸ’‘ One rule: Use CAGR for a single lump sum invested once. Use XIRR whenever money flows in or out at different times β€” like SIPs, partial redemptions, or dividend reinvestments.

Quick Summary

πŸ“Š CAGR

  • One investment β†’ one exit
  • Simple closed-form formula
  • Used in fund factsheets
  • Misleading for SIPs
  • Start & end date only

πŸ“ˆ XIRR

  • Multiple investments/exits at different dates
  • Iterative calculation
  • Used by Groww, Kuvera, etc.
  • Accurate for SIPs
  • Every exact date matters

What is CAGR?

CAGR represents the smooth, uniform annual return that would take a single investment from its starting value to its ending value over a given period β€” as if it grew at exactly the same rate every single year. It is a hypothetical smoothed-out rate; actual year-by-year returns are almost never uniform.

Formula: CAGR = (Final Value Γ· Initial Value)^(1Γ·Years) βˆ’ 1

Example: You invest β‚Ή1,00,000 in a mutual fund. After 5 years, it is worth β‚Ή2,48,832. CAGR = (2,48,832 Γ· 1,00,000)^(1Γ·5) βˆ’ 1 = 20.0% per annum. This means your money effectively grew at 20% every year, even though actual annual returns may have been βˆ’5%, 40%, 15%, 12%, 18%.

When to Use CAGR

  • Evaluating a fund’s historical performance on a factsheet
  • Comparing two lump sum investments made on the same date
  • Measuring point-to-point growth of any portfolio between two specific dates

What is XIRR?

XIRR calculates the annualized return for a series of cash flows occurring at irregular intervals β€” accounting for the exact date and amount of each transaction. It is the correct metric for any scenario with multiple cash flows: SIPs, top-up investments, partial withdrawals, dividend reinvestments, or any mix of the above.

Technically, XIRR finds the discount rate r that makes the sum of all present values of cash flows equal to zero: Ξ£ [CFα΅’ Γ· (1+r)^(dα΅’Γ·365)] = 0

This is solved iteratively (Newton-Raphson algorithm) β€” which is why Excel and financial calculators are needed rather than simple arithmetic.

When to Use XIRR

  • Measuring personal SIP returns (your actual returns, not fund’s published returns)
  • Any investment with multiple entry points at different dates
  • Portfolios with partial redemptions or withdrawals at different times
  • Comparing “your” returns vs the fund’s published CAGR

Key Differences

Feature CAGR XIRR
Number of cash flows Exactly 2 (invest + exit) Any number, any dates
Timing sensitivity Start and end date only Every exact date and amount
Calculation method Simple formula (^1/n) Iterative (Newton-Raphson)
Accuracy for SIPs Wrong β€” misleading Correct β€” the right metric
Used in Fund factsheets, point-to-point Portfolio trackers, brokerage apps
Available in Excel =(FV/PV)^(1/n)-1 =XIRR(values, dates)

Worked Examples

CAGR Example

β‚Ή5,00,000 lump sum invested Jan 2019. Worth β‚Ή12,00,000 in Jan 2025 (6 years). CAGR = (12,00,000Γ·5,00,000)^(1Γ·6)βˆ’1 = 15.7% p.a.

XIRR Example (SIP)

You invest β‚Ή5,000/month for 24 months (β‚Ή1,20,000 total). Current value β‚Ή1,47,500. Each SIP instalment has a different holding period β€” the first held 24 months, the last held just 1 month. CAGR would give a nonsensical answer. XIRR correctly computes β‰ˆ 19.4% annualized β€” accounting for each instalment’s actual holding period.

Why XIRR Matters for SIP Investors

Mutual fund platforms like Groww, Kuvera, Zerodha, and Paytm Money all display your personal returns as XIRR. This is why your displayed return often differs from the fund’s published 1-year or 3-year CAGR β€” the fund’s CAGR is point-to-point lump sum performance, while your XIRR reflects your actual SIP timing and amounts.

πŸ“Œ Don’t compare your XIRR to a fund’s CAGR β€” they measure different things. Your XIRR is your personal return based on when you actually invested. A fund’s 3-year CAGR assumes you invested everything on day 1 and held it exactly 3 years.

How to Calculate XIRR in Excel / Google Sheets

  1. In column A, list all transaction dates (including today’s date for current value)
  2. In column B, enter amounts: negative for investments, positive for withdrawals/current value
  3. In an empty cell: =XIRR(B1:B25, A1:A25)
  4. The result is a decimal β€” multiply by 100 for percentage
  5. If XIRR returns an error, ensure at least one positive and one negative cash flow exist

Calculate CAGR and XIRR instantly β€” no Excel needed

Try Free CAGR & XIRR Calculator β†’

Frequently Asked Questions

Why is my XIRR lower than the fund’s published return?

Because fund returns are published as point-to-point CAGR β€” if you’d invested a lump sum at the start of the measurement period. Your personal XIRR reflects your actual SIP timing. If you invested more heavily when markets were high, your XIRR will be lower than the fund’s published CAGR.

What is a good XIRR for a mutual fund SIP?

For equity fund SIPs over 5+ years: 10–14% XIRR is good; above 15% is excellent. For debt fund SIPs: 6–8% XIRR is typical. Always compare XIRR against the fund’s benchmark and category peers for context.

Can CAGR be negative?

Yes. If your final value is less than your initial investment, CAGR will be negative β€” indicating a loss on an annualized basis. For example, β‚Ή1L shrinking to β‚Ή70,000 over 3 years gives a CAGR of βˆ’11.1%.

Does XIRR account for dividends and bonus units?

Only if you include them as positive cash flows in your XIRR calculation on the dates received. Many investors forget dividend payouts β€” if excluded, XIRR will understate your actual returns.