XIRR
Extended Internal Rate of Return calculates returns when money is invested or withdrawn at multiple points in time.
XIRR weights every cash flow by how long it stayed invested, which makes it the correct return measure for SIPs, SWPs and top-ups. Most Indian fund houses and brokers report XIRR on your portfolio statement.
Why XIRR matters when comparing products
When comparing financial products in India, especially those involving multiple investments or withdrawals over time like Systematic Investment Plans (SIPs) or top-ups, XIRR provides a more accurate performance measure than simple returns. It accounts for the varying time periods each cash flow is invested, making it suitable for evaluating investments where money is not deployed in a single lump sum. This allows for a fair comparison of instruments with different cash flow patterns.
Illustrative example
If an investor puts ₹1,000 monthly into a fund for 12 months, and then withdraws a final amount of ₹13,000, XIRR would calculate the effective annual return. A simple return calculation wouldn't factor in the varying investment durations of each ₹1,000, potentially misrepresenting the actual earnings over the investment period. XIRR provides a single annualised rate for such a series of transactions.
Related terms
Compound Annual Growth Rate represents the mean annual growth rate of an investment over a specified period longer than one year.
A Systematic Investment Plan invests a fixed amount in a scheme at regular intervals.
Net Asset Value is the per-unit market value of the securities held by a mutual fund scheme.