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    What is XIRR in Mutual Funds

What is XIRR in Mutual Funds

What is XIRR in Mutual Funds
  • Published Date: May 28, 2025
  • Updated Date: August 06, 2025
  • By Team Choice

Investors often contribute regularly to mutual funds through Systematic Investment Plans (SIPs) and redeem their investments after several years have passed. To assess the performance of these investments, it's essential to accurately measure returns using metrics like XIRR (Extended Internal Rate of Return). Many investors also wonder about CAGR vs XIRR—while CAGR (Compound Annual Growth Rate) is useful for lump sum investments, XIRR is better suited for irregular cash flows typical of SIPs.

This article offers a detailed guide on XIRR in mutual funds, including XIRR's full form, its significance in mutual funds, how to calculate XIRR, and other key insights.

XIRR Full Form

XIRR (Extended Internal Rate of Return) represents the annualised return that equates the present value of all cash flows in an investment, such as a SIP (Systematic Investment Plan), to its current value. It showcases the true returns generated from your investments.

XIRR calculates returns when there are multiple, non-uniform transactions over time. By applying a consistent rate to all investments and redemptions, XIRR provides a single, comprehensive return metric that reflects the true performance of your investment.

Also Read:  Compound Annual Growth Rate

Let’s Explore How XIRR provides accurate returns with a practical XIRR example:

Imagine you invest in SIP of ₹7,000 per month in a mutual fund and continue this investment for four years. Over time, despite market volatility, your total investment value grows to ₹4.2 lakh at the end of the fourth year.

Now, each ₹7,000 contribution was made at a different time. Your first instalment stayed invested for the full 48 months, while your last instalment was invested for just one month before you evaluated the total value.

Because of this, each SIP instalment has a different investment duration and, consequently, a different compounded annual growth rate (CAGR). Trying to calculate and interpret the CAGR for every individual instalment would be confusing and impractical.

This is where XIRR steps in. Instead of calculating multiple CAGRs, XIRR combines all cash flows and their respective timings into a single, annualised return figure. It effectively represents an adjusted CAGR that accounts for the actual dates of investments and redemptions, giving a true picture of your mutual fund’s performance.

Importance of XIRR in Mutual Fund Performance Evaluation

The meaning of XIRR in mutual fund evaluation stems from its precise nature. Unlike CAGR, XIRR takes into account:

  • The timing of each investment
  • The amount invested at different intervals
  • The final value or redemption amount

This makes it ideal for real-world mutual fund investing, where money is rarely invested in one go. For example, if you’re investing monthly through SIPs, your returns need to reflect the compounding effect on each instalment, which is exactly what XIRR does.

Using the Choice XIRR SIP calculator, investors can measure how their money has grown over time more realistically.

What Is a Good XIRR in Mutual Funds?

So, what is a good XIRR? It typically depends on the type of fund you're investing in and your investment horizon.

Key Factors That Define a "Good" XIRR:

  • Investment Duration: Long-term investments tend to yield higher and more stable XIRRs.
  • Market Conditions: Bull markets boost XIRR; bear markets may lower it temporarily.
  • Risk Tolerance: For conservative investors, a fund’s high XIRR might not be appealing if the fund is highly volatile.
  • Inflation: A good XIRR should ideally beat inflation by at least 3-4%.

How to Calculate XIRR?

Now that we’ve understood what XIRR is in mutual funds, let’s learn how XIRR is calculated.

The most common and convenient way to calculate XIRR is by using Microsoft Excel or Google Sheets, which offers a built-in XIRR function. This is especially helpful when dealing with multiple investments made on different dates, like in SIPs or staggered lump sum investments.

How to Calculate XIRR in Excel or Google Sheets: Step-by-Step Guide

1. Enter Cash Flows in Column A:

  • Record all your transactions (investments and redemptions).
  • Enter investment amounts as negative values and withdrawals or final redemption as positive values.

2. Enter Corresponding Dates in Column B:

  • Ensure each transaction has the correct date, as XIRR takes time gaps into account.

3. Input the XIRR Formula:

  • Input this function: =XIRR(values, dates)
  • Convert the result to a percentage by multiplying by 100.
  • The third parameter, "guess," is optional and doesn’t need to be included.

Example: Calculate XIRR for a 4-Month SIP

Suppose you invest ₹4,000 monthly in a mutual fund for 4 months. After that, the investment grows, and you redeem the fund for ₹17,000. Here’s how your Excel sheet should look:

Date Amount
05-Jan-2025 -4,000
05-Feb-2025 -4,000
05-Mar-2025 -4,000
05-Apr-2025 -4,000
05-May-2025 -4,000

Apply the formula in Excel:

=XIRR(B2:B6, A2:A6)*100

Result:

The XIRR in this case will be approximately 26.49%, indicating the effective annualised return on your staggered investments.

Final Thoughts

XIRR is an accurate way to calculate real-world investment returns, especially in mutual funds where cash flows are irregular. While CAGR is useful for comparing and selecting mutual funds, XIRR is essential for evaluating the actual returns you’ve earned.

When your portfolio includes SIPs, redemptions, switches, or dividends, XIRR provides a more realistic and precise return figure.

Frequently Asked Questions (FAQs)

What is the meaning of XIRR in mutual fund?

XIRR (Extended Internal Rate of Return) in mutual funds is the annualised return that factors in both the amount and timing of multiple investments and withdrawals. It provides a clearer and more precise view of returns, particularly for investors making investments at different times.

How does XIRR differ from absolute return?

  • Absolute Return: Ignores time
  • XIRR: Consider both time and value of each investment.

Can I use XIRR for my NPS (National Pension System) returns?

Yes, XIRR in NPS works the same way as mutual funds. It helps you understand your annualised return based on the varying contributions and final corpus.

How much XIRR is good?

A good XIRR depends on the type of mutual fund and your financial goals.
For example, a debt fund (which is low risk) usually gives an XIRR of around 5–6%. On the other hand, a small-cap fund (which is higher risk) can aim for 12–15% over the long term.

What is the IRR Full form?

IRR stands for Internal Rate of Return. It’s a financial metric used to evaluate the profitability of an investment. Essentially, IRR is the interest rate at which the net present value (NPV) of all future cash flows (both incoming and outgoing) from an investment equals zero.

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