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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- What is XIRR and its Meaning in Mutual Funds?
- Insurance Companies
- Mutual Funds
| Returns | ||||
|---|---|---|---|---|
| Fund Name | 3 Years | 5 Years | 10 Years | |
| Top 200 Fund Tata AIA | 24.74% | 31.65% |
20.12%
View Plan
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| Virtue II PNB Metlife | 22.28% | 27.93% |
18.14%
View Plan
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| Pure Equity Birla Sun Life | 20.86% | 24.74% |
16.69%
View Plan
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| Growth Opportunities Plus Fund Bharti AXA | 17.96% | 22.2% |
16.15%
View Plan
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| Pure Stock Fund Bajaj Allianz | 19.31% | 22.69% |
15.67%
View Plan
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| Diversified Equity Fund HDFC Standard | 15.67% | 20.12% |
15.12%
View Plan
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| Growth Super Fund Max Life | 15.78% | 19.21% |
13.57%
View Plan
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| Equity Fund SBI | 15.88% | 18.78% |
13.1%
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| Multi Cap Growth Fund ICICI Prudential | 16.58% | 19.08% |
12.87%
View Plan
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| Growth Plus Fund Canara HSBC Oriental Bank | 13.79% | 15.67% |
11.3%
View Plan
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Updated as of Aug 2024
| Returns | ||||
|---|---|---|---|---|
| Fund Name | 3 Years | 5 Years | 10 Years | |
| Active Fund QUANT | 24.92% | 31.48% |
21.87%
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| Flexi Cap Fund PARAG PARIKH | 20.69% | 26.41% |
19.28%
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| Large and Mid-Cap Fund EDELWEISS | 22.34% | 24.29% |
17.94%
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| Equity Opportunities Fund KOTAK | 24.64% | 25.01% |
19.45%
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| Large and Midcap Fund MIRAE ASSET | 19.74% | 24.32% |
22.50%
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| Flexi Cap Fund PGIM INDIA | 14.75% | 23.39% |
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| Flexi Cap Fund DSP | 18.41% | 22.33% |
16.91%
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| Emerging Equities Fund CANARA ROBECO | 20.05% | 21.80% |
15.92%
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| Focused fund SUNDARAM | 18.27% | 18.22% |
16.55%
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Updated as of Aug 2024
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-
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XIRR in Mutual Funds,
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XIRR in Unit Linked Insurance Plan (ULIP), and
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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:
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Investments through a Systematic Investment Plan (SIP),
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Withdrawals made through Systematic Withdrawal Plans (SWP),
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Additional purchases of units
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Returns deposited in your fund,
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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:
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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.
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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:
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Irregular Cash Flows:
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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:
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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.
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XIRR is a versatile tool that can be applied to any of the best investment plans, considering various cash flow patterns.
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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:
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Cash Flows: The range of cells that contain the cash flows
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Dates: The range of cells that contain the dates of the cash flows
Steps to Calculate XIRR in Excel:
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Step 1: List all your cash flows in one column as per below-
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Inflows as positive (+)
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Outflows as negative (-)
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Step 2: Write the dates in a column for each of the respective cash flows.
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Step 3: Click on a cell where you want the XIRR result to appear.
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Step 4: Enter the formula: =XIRR(cashflow_range, dates_range)
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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-
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XIRR (Extended Internal Rate of Return): It calculates the annualized return on investments with irregular cash flows on different dates.
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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:
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Single Investment Growth:
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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.
