What is XIRR? Why Your Mutual Fund Returns Look Wrong (And How to Read Them Correctly)
You've been running a ₹10,000/month SIP for 3 years. Your app shows "15% returns." But when you look at the actual numbers — invested ₹3.6 lakh, current value ₹4.2 lakh — the gain is only ₹60,000, which feels like far less than 15%. Are the returns wrong? Is the app lying?
No — and understanding why requires knowing the difference between CAGR and XIRR, and why only one of them is meaningful for SIP investments.
What CAGR is and when it's useful · What XIRR is and why it exists · Why CAGR is wrong for SIPs · A worked example showing both calculations · Where to find your XIRR on Zerodha, Groww, and Kuvera · When to use which metric
CAGR: The Right Metric for Lumpsum, Wrong for SIP
CAGR (Compound Annual Growth Rate) answers: if ₹X invested today becomes ₹Y in N years, what was the annual growth rate? It assumes a single investment at the start and a single redemption at the end.
Formula: CAGR = (Final Value / Initial Value)^(1/years) − 1
This works perfectly for lumpsum investments. But a SIP has dozens of different investment dates, each with a different amount of time invested. Your January instalment has been in the fund 36 months; your December instalment has been in for just 1 month. Applying a single CAGR to this portfolio is mathematically incorrect — it treats all your money as if it was invested at the same time.
XIRR: The Right Metric for SIP
XIRR (Extended Internal Rate of Return) is the standard solution. It calculates the annualised return that makes the net present value of all your cash flows (each monthly investment, plus the final redemption) equal to zero. In plain terms: it finds the single annual return rate that correctly accounts for every investment's actual holding period.
XIRR is the only accurate way to compare SIP returns to:
- Returns from a lumpsum investment
- Returns from a different SIP in a different fund
- The benchmark index return over the same period
- Any other investment option (FD, PPF, real estate)
A Worked Example: Why the Gap Exists
The CAGR of 7.3% is misleading because it treats ₹3.6L as if it was all invested on Day 1, three years ago. But your last few instalments have only been invested for a few months — they haven't had time to generate significant returns. XIRR correctly identifies that the money you invested early has been earning well, and the money you invested recently has barely started, arriving at 14.8% as the true blended annual return.
A fund's fact sheet shows a "point-to-point" return — what ₹1 lakh invested on a specific date returned. This is CAGR, not XIRR. Your personal XIRR will differ depending on exactly when you invested and how the markets moved during your specific investment period. Neither number is wrong — they're measuring different things.
Where to Find Your XIRR
Zerodha Console
Go to console.zerodha.com → Portfolio → Holdings. Your overall XIRR is shown in the portfolio summary. For individual fund-level XIRR, switch to the "Funds" view.
Groww
Open the Groww app → Portfolio. The "Returns" card shows both the absolute gain and XIRR. Tap any individual fund for its specific XIRR.
Kuvera / MFCentral
Both platforms show XIRR prominently in the portfolio dashboard. Kuvera additionally shows the XIRR by goal, by fund category, and by individual fund.
Calculate It Yourself (Excel / Google Sheets)
The Excel XIRR function takes two arrays: dates and cash flows (investments as negative numbers, final value as positive). If you've been investing ₹10,000 on the 5th of each month and your current value is ₹4.45L:
=XIRR(cashflows, dates) where cashflows = {-10000, -10000, ..., 445000} and dates = {5-Jan-2023, 5-Feb-2023, ..., 31-Dec-2025}
When to Use Which Metric
| Metric | Use For | Don't Use For |
|---|---|---|
| XIRR | SIPs, any irregular investments, comparing different investment strategies | Single lumpsum investments |
| CAGR | Lumpsum investments, fund benchmark comparison, NFO/IPO performance | SIPs or any portfolio with multiple investment dates |
| Absolute return % | Quick sense of total gain vs investment | Comparing investments of different durations |
- CAGR is accurate for lumpsum investments; XIRR is accurate for SIPs and irregular investments
- XIRR accounts for each instalment's actual holding period — CAGR does not
- Your app's "15% returns" on a SIP is XIRR, which correctly reflects what you've actually earned
- Never compare your SIP's XIRR to a fund's CAGR from its fact sheet — they're measuring different things
- Find your XIRR on Zerodha Console, Groww app, Kuvera, or calculate with Excel's XIRR function