What is XIRR?
XIRR or Extended Internal Rate of Return is the yearly rate of return on investments made at different times. It is the standard way to measure the returns on a SIP, where every instalment is invested on a different date and stays invested for a different length of time.
Simple measures such as absolute return or CAGR assume all your money was invested on one day. XIRR instead accounts for the date of every investment and withdrawal, so it gives a true picture of how your money has grown.
Mutual fund statements in India usually report your SIP returns as XIRR.
Fun fact
XIRR is the same calculation as the XIRR function in Excel and Google Sheets.
What is an XIRR Calculator?
An XIRR calculator works out the yearly return on your investment from the amount you invest every month, when you started, how much your investment is worth and on which date.
Use “Add more” to include one-time investments, such as a lumpsum top-up, alongside your monthly instalments.
Why you should use an XIRR Calculator?
- Accurate returns: XIRR accounts for the timing of every instalment, unlike absolute return.
- No complex maths: XIRR can only be found by trial and error. The calculator does it instantly.
- Helps in comparison: Compare your SIP returns with FDs, other funds or any investment on the same yearly basis.
How Does an XIRR Calculator Work?
The XIRR calculator works on the following inputs:
- Recurring Investment Amount: The amount you invest every month, and the date of the first instalment.
- Total Maturity Amount: What your investment is worth, and the date of that value.
- One-time Investments: Any extra amounts you invested, with their dates (optional).
An instalment is counted for every month from the start date up to the maturity date. XIRR is the rate r that makes the present value of all the cash flows add up to zero:
Σ Cᵢ ÷ (1 + r)^((dᵢ – d₀) ÷ 365) = 0
- Cᵢ
- Each cash flow: investments negative, maturity amount positive
- dᵢ
- The date of each cash flow
- d₀
- The date of the first investment
Let’s work through an example for better understanding.
Calculate XIRR with an Example
Consider an example for a better understanding.
- Monthly Investment: ₹5,000 from 1 January 2025
- Maturity Amount: ₹64,000 on 1 January 2026
You invest ₹60,000 over 12 monthly instalments. Your first instalment stays invested for a full year, but your last one for only a month. After calculation, the XIRR is approximately 12%.
The absolute return here is only 6.67%, because it ignores that most of your money was invested for well under a year.
What are the benefits of using XIRR?
- Built for SIPs: It handles many investments made on different dates.
- True yearly return: It shows the real annual growth rate of your money.
- Industry standard: It is the measure used in mutual fund statements, so you can compare like for like.