XIRR vs CAGR - Which Return Measure Should I Use?
Use CAGR for lumpsum investments where you invest once and measure growth. Rs 1 lakh growing to Rs 3.1 lakh in 10 years: CAGR = 12%. Use XIRR for SIPs, stocks with multiple buys, or any portfolio with multiple cashflows. XIRR is mathematically superior for real-world investing patterns.
XIRR
17.11%
Annualized return using Newton-Raphson method
XIRR (Extended Internal Rate of Return) handles irregular cashflows. Use negative values for investments and positive for redemptions.
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Common questions about XIRR vs CAGR - Which Return Measure Should I Use?
Can XIRR be higher than fund CAGR?
Yes, if you invested more during market lows. If a fund's NAV CAGR is 12% but you happened to do a large lump purchase at the bottom of a bear market, your personal XIRR could be 18%. Conversely, if you invested heavily just before a market crash, your XIRR will be lower than the fund's CAGR. XIRR captures your personal experience, not the fund's abstract performance.
How does XIRR handle irregular SIP amounts?
XIRR handles any pattern of cashflows. Step-up SIPs where you increase amount every year, ad-hoc lumpsum additions, or partial redemptions - all are handled correctly. You just need to enter each cashflow with its exact date. No other return metric handles irregular cashflows correctly. XIRR is mathematically defined as the interest rate that makes the NPV of all cashflows zero.
What is a negative XIRR and when does it happen?
A negative XIRR means your current portfolio value is less than total invested. This happens when markets have fallen significantly since your SIP started, or you recently started investing in a bear market. A -10% XIRR on a 2-year SIP that started at market peaks in 2021-22 is not unusual. Most SIPs with negative XIRR turn positive within 5-7 years of continued investment.