What is XIRR and Its Meaning in Funds?

The meaning of XIRR is Extended Internal Rate of Return, which is a financial indicator used to evaluate the performance of your market-linked investments. It estimates the annual rate of return for both periodic and irregular investments with multiple cash flows. XIRR is a more accurate metric as it takes into account the precise timing and volume of cash flows.

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Mutual Funds

Fund Name	3 Years	5 Years	10 Years
	Returns
Virtue II PNB Metlife	17.59%	26.28%	17.97% View Plan
Pure Equity Birla Sun Life	16.46%	22.3%	16.37% View Plan
Large Cap Equity Fund Tata AIA	15.6%	22.37%	16.08% View Plan
Pure Stock Fund Bajaj Allianz	16.09%	21.14%	15.63% View Plan
Grow Money Plus Fund Bharti AXA	12.28%	19.29%	15.52% View Plan
Diversified Equity Fund HDFC Standard	12.23%	18.23%	14.75% View Plan
Growth Super Fund Max Life	11.9%	17.66%	13.67% View Plan
Equity Fund SBI	12.46%	17.13%	13.21% View Plan
Bluechip Fund ICICI Prudential	10.9%	16.61%	12.33% View Plan
Growth Plus Fund Canara HSBC Oriental Bank	10.71%	14.33%	11.37% View Plan

Updated as of Oct 2024

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Fund Name	3 Years	5 Years	10 Years
	Returns
Active Fund QUANT	24.92%	31.48%	21.87%
Flexi Cap Fund PARAG PARIKH	20.69%	26.41%	19.28%
Large and Mid-Cap Fund EDELWEISS	22.34%	24.29%	17.94%
Equity Opportunities Fund KOTAK	24.64%	25.01%	19.45%
Large and Midcap Fund MIRAE ASSET	19.74%	24.32%	22.50%
Flexi Cap Fund PGIM INDIA	14.75%	23.39%	-
Flexi Cap Fund DSP	18.41%	22.33%	16.91%
Emerging Equities Fund CANARA ROBECO	20.05%	21.80%	15.92%
Focused fund SUNDARAM	18.27%	18.22%	16.55%

Updated as of Oct 2024

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What is XIRR?

The XIRR full form is an Extended Internal Rate of Return. It is a method to calculate the returns on investments in which multiple transactions are taking place at different times. XIRR is different from Compound Annual Growth Rate (CAGR), which is only applicable to investments with a single cash flow. XIRR is commonly used to calculate the returns on your market-linked funds like-

XIRR in Mutual Funds,
XIRR in Unit Linked Insurance Plan (ULIP), and
XIRR in NPS (National Pension Scheme)

You can use an SIP Calculator to plan your investments in market-linked funds.

What are Multiple Cash- Flows in XIRR?

The XIRR rate of return is calculated by considering the irregular cash flows made at different intervals. These transactions cover the following investments:

Investments through a Systematic Investment Plan (SIP),
Withdrawals made through Systematic Withdrawal Plans (SWP),
Additional purchases of units
Returns deposited in your fund,
Redemption of your fund

NOTE: Policybazaar has an online SIP calculator to get the estimated returns on SIP investment.

IRR vs. XIRR

The Internal Rate of Return (IRR) and Extended Internal Rate of Return (XIRR) are both used to calculate the performance of your investments, but they differ by the cash flows they handle:

Internal Rate of Return (IRR): It takes into account all the transactions, but assumes they occur at equal intervals of time. IRR is suitable for investments with consistent cash flows. It is not precise for investments with uneven cash flows.
Extended Internal Rate of Return (XIRR): It considers both the amount and timing of cash flows, along with the exact date of their occurrence. XIRR is more accurate for investments with irregular cash flows.

Feature	IRR (Internal Rate of Return)	XIRR (Extended Internal Rate of Return)
Definition	Rate of return on an investment where Net Present Value (NPV) is zero	Rate of return on investments with irregular cash flows
Cash Flow Timing	Assumes regular, periodic cash flows (e.g., annually)	Accounts for cash flows occurring at irregular intervals
Use Case	Best for investments with regular cash flow intervals	Ideal for investments with varying cash flow dates
Calculation Method	Uses a fixed interval for calculations	Uses exact dates for each cash flow
Accuracy	Less accurate with irregular cash flows	More accurate with irregular cash flows
Example	Regular Cash Flows: Initial Investment: -₹10,000 Year 1: +₹3,000 Year 2: +₹3,000 Year 3: +₹3,000 Year 4: +₹3,000 Year 5: +₹3,000	Irregular Cash Flows: Initial Investment: -₹10,000 (on 01-Jan-2020) Year 1: +₹2,000 (on 15-Feb-2021) Year 2: +₹5,000 (on 10-July-2022) Year 3: +₹4,000 (on 22-Nov-2023) Year 4: +₹7,000 (on 05-May-2024)

Why to Calculate XIRR in a Mutual Fund/ ULIP Fund?

It is essential to calculate XIRR in a mutual fund and ULIP fund for several reasons, some of which are as follows:

To get a more accurate measure of your returns for investments with irregular cash flows, as you invest and withdraw multiple times in mutual funds and ULIPs.
XIRR is a versatile tool that can be applied to any of the best investment plans, considering various cash flow patterns.
To track the performance of your investments over time and make better financial decisions.

How to Calculate XIRR?

You can use an Excel spreadsheet to calculate the XIRR return, which can handle data with multiple cash flows happening at irregular intervals. These cash flows can be gains/ returns/ redemption (positive numbers) or SIP/ deposits (negative numbers).

XIRR Formula in Excel:

XIRR in Excel = XIRR (cash flows, dates)

Where:

Cash Flows: The range of cells that contain the cash flows
Dates: The range of cells that contain the dates of the cash flows

Steps to Calculate XIRR in Excel:

Step 1: List all your cash flows in one column as per below-
- Inflows as positive (+)
- Outflows as negative (-)
Step 2: Write the dates in a column for each of the respective cash flows.
Step 3: Click on a cell where you want the XIRR result to appear.
Step 4: Enter the formula: =XIRR(cashflow_range, dates_range)
Step 5: Press Enter.

The Excel software will show the XIRR rate of return for the given cash flows as a percentage.

Illustration to Calculate XIRR in Excel:

Enter the cash flows in the Excel sheet as mentioned in the above steps. Here is an example:

A	B
Date	SIP Amount
01/02/2023	-20000
02/02/2023	-500
03/10/2023	-300
04/02/2023	10000
05/17/2023	27000
06/05/2023	105
07/08/2023	-500
08/01/2023	10000
09/10/2023	4500
10/14/2023	-1000
XIRR =	8.826828074

The XIRR is 8.82% p.a. which represents the internal rate of return for your cash flows, expressed as a yearly percentage.

XIRR Vs CAGR

CAGR, like XIRR, is a key metric that can be used to estimate the rate of return for your market-linked investments easily. A quick definition of both is as follows-

XIRR (Extended Internal Rate of Return): It calculates the annualized return on investments with irregular cash flows on different dates.
CAGR (Compound Annual Growth Rate): It measures the mean annual growth rate of your investment over a specific period.

The key differences between XIRR and CAGR are mentioned in the table below:

Feature	XIRR	CAGR
Full form	Extended Internal Rate of Return	Compound Annual Growth Rate
Definition	Rate of return on investments with irregular cash flows.	Annual growth rate of an investment over a specified period.
Cash Flow Timing	Consider cash flows occurring at irregular intervals.	Assumes a single investment with no intermediate cash flows.
Calculation	It considers the exact timing and amount of cash flows, making it suitable for irregular investments and withdrawals.	It assumes a constant rate of growth over a specified period, regardless of cash flow timing.
Applicability	Applicable on investments with multiple cash flows.	Applicable on investments with a single cash flow.
Accuracy	Assumes a single investment with no intermediate cash flows.	Accurate for measuring consistent annual growth.
Example	Irregular Cash Flows: Initial Investment: -₹10,000 (on 01-Jan-2020) Year 1: +₹2,000 (on 15-Feb-2021) Year 2: +₹5,000 (on 10-Jul-2022) Year 3: +₹4,000 (on 22-Nov-2023) Year 4: +₹7,000 (on 05-May-2024)	Single Investment Growth: Initial Investment: ₹10,000 Value after 5 years: ₹16,000

Wrapping It Up

XIRR (Extended Internal Rate of Return) is a valuable metric for evaluating the performance of ULIP and mutual funds. This method accounts for the time and amount of your investments by considering both inflows and outflows. XIRR offers a more accurate representation of an investment fund's performance, helping you to make informed decisions about your investments.

Frequently Asked Questions

What is a good XIRR rate?

The definition of a good XIRR rate depends on a number of factors, including the asset class, the investment horizon, and your risk tolerance. However, as a general rule of thumb, an XIRR of 11-12% is considered good for equity funds, and 7-8% is considered good for debt funds.

Is XIRR better than CAGR?

XIRR is considered to be a better measure of investment returns than CAGR, especially for investments with irregular cash flows, such as SIPs. However, CAGR is easier to calculate and understand, so it is often used as a more general measure of investment performance.

What is the formula for XIRR?

The XIRR formula is: XIRR(values, dates, [guess])

where:

Values: An array of cash flows, where a negative value represents an outflow and a positive value represents an inflow.
Dates: An array of dates corresponding to the cash flows.
Guess: An optional argument that provides an initial guess for the XIRR. If omitted, Excel will use a default value of 10%.

What is the major difference between IRR and XIRR?

The major difference between IRR and XIRR is that IRR assumes that all cash flows in your investment fund occur at the end of the period, while XIRR takes into account the actual timing of the cash flows. This makes XIRR a more accurate measure of the true returns of an investment, especially for investments with irregular cash flows.