What is XIRR in Mutual Funds and Why It Matters for Your SIPs

If you are taking the Systematic Investment Plan (SIP) route to invest in mutual funds and build wealth, you need to know how to evaluate returns.

You cannot be using the compounded annualised growth rate (CAGR) or absolute returns to assess the returns. You need to use to External Internal Rate of Returns or XIRR.

This is because when you are SIP-pinginto mutual funds, there are multiple or a series of investments you are making over the SIP tenure. It is also possible that you have made partial redemptions or outflow from the scheme during the SIP tenure. It is therefore important that these inflows and outflows are accounted for when assessing the SIP returns earned, and here's where XIRR comes in handy.

You see, while CAGR is the most commonly used to evaluate returns, the very limitation of its formula is that it takes into consideration only the end value and initial investment made to provide the annual average growth rate over the investment tenure. Its formula is as follows:

CAGR = (End Value of Investment /Initial Value of Investment) ^ 1/n - 1

(where n = number of years of investment)

So, what the CAGR formula takes into consideration is only the start and end value of the investment. The multiple series of investments, as with SIP, are ignored.

The XIRR, on the other hand, takes into consideration multiple cash inflows (investments) and outflows (redemptions/switches).

XIRR Calculation

XIRR discounts the cash flows based on the timing of the flows to arrive at the present value of the investment.

The cash flows (inflows and outflows) that occur earlier during the investment tenure are discounted less, while the ones that occur later are discounted more. This is because the time value of money reduces over a period of time.

You can calculate XIRR on MS Excel using the symbol function. The formula syntax is:

=XIRR(values, dates,[guess])

Wherein:

• Values are your investment and redemption amounts (inflows are negative, outflows are positive)
• Dates are the actual dates of those cash flows.

To calculate XIRR, enter details of all SIP purchases and the current value or the redemption value along with the date in the Excel columns.

Make sure the dates are on the left side, while the amount is on the right side.

In column A of the Excel sheet, enter the transaction dates, whereas in column B, enter the SIP amount in negative figures (as they are cash outflows). For inflows and the value of the investment should be kept positive.

In column B at the end of all values/amounts, type the formula syntax as =XIRR(B2:B14, A2:A14)*100, leave the guess field blank and hit 'Enter'.

Say, you started a monthly SIP of Rs 10,000 in Parag Parikh Flexi Cap Fund 18 months ago, in August 2020. Total SIP investment you made is Rs 180,000 (Rs 10,000 x 18 months) and the value of that investment as of 6 August 2025, is Rs 196,759. Using the formula syntax, the XIRR would be 11.8%.

What XIRR basically reflects is your investment journey. It is real-world investment returns, factoring in all aspects, such as investment dates, SIP investment amount, additional cash inflows, cash outflows, value of your investment at the end of a particular date.

Yes, XIRR return calculation is more complex compared to CAGR, but it is a superior method of computing returns and when investments as well as redemptions are made regularly. Even for investments with irregular cashflows, using XIRR is appropriate.

Reading XIRR Returns

You don't need to worry about calculating XIRR. If you are doing mutual fund SIPs online, today, most apps show XIRR by default while showing the performance.

Likewise, if you are accessing your mutual fund account statement or consolidated account statement issued by CAMS and KFintech for your SIP investments, the XIRR returns will be readily available.

All you have to do is read and assess it. While SIPs have become a popular mode of investment today, it is important that schemes in your portfolio consistently outperform the relevant benchmark and category peers over the period considered.

Hence, don't look at XIRR returns in silos, compare it with category average and peers. If the scheme is faring well, it could help you accomplish the envisioned financial goal/s for which you are doing SIPs. Make sure you are choosing the best mutual fund schemes out there for SIPs, don't get tricked by just glossy past returns.

[Read: Top 5 Equity Mutual Funds for SIP]

Conclusion

SIPs are a sensible choice for wealth creation and achieving your financial goals. But making meaningful SIP contributions and evaluating the returns they are generating also needs to be thoughtfully done.

Following an appropriate method to calculate and evaluate returns is necessary to get a true picture of the growth of your investments.

Be thoughtful in your approach.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a recommendation and should not be treated as such.