XIRR, or Extended Internal Rate of Return, is a formula through which you can measure the return on your mutual fund investment in case there are multiple cash flows involved (which happens in the case of SIP, SWP, STP, etc.). It is one the most accurate methods of calculating return on investment from mutual funds.
This article covers:
- What Is XIRR In Mutual Funds?
- What Is XIRR Formula?
- Difference Between XIRR And CAGR
- Best XIRR Mutual Fund India
- XIRR Meaning In Mutual Fund- Quick Summary
- XIRR Meaning In Mutual Fund- FAQ
What Is XIRR In Mutual Funds?
XIRR, also known as Extended Internal Rate of Return, is an investment evaluation technique through which you will be able to measure the return you will be able to receive by investing in a specific mutual fund investment scheme. Moreover, this method can also help you determine the estimated worth of all your investments.
The return rate you receive from calculating the XIRR of an investment fund can be used for all reinvestments and encashment. If you invest through multiple transactions, such as SIP, each of your installments is compounded at a different rate.
For example, if you have opted for a SIP of Rs. 5000 for two years, then the first deposit of Rs. 5000 will be invested for 2 years, whereas the second installment will be invested for 1 year 11 months, and the list goes on. Therefore, XIRR is a method that considers every single transaction with respect to the total time period of investment before offering you the exact return rate.
Although IRR, or Internal Rate of Return, is a method through which you can efficiently measure the returns from SIP, the formula does not consider the time of the cash flow. For installment-oriented investments, XIRR makes things fairly straightforward and simple. All you need to do is to enter the cash flow information in a Microsoft Excel spreadsheet and use the formula to calculate the results, or you can also use an online XIRR calculator.
What Is XIRR Formula?
In order to calculate the XIRR of a mutual fund scheme, you will need to insert a formula in the Microsoft Excel spreadsheet. Here is the formula you need to insert:
“= XIRR (values, dates, guess)”
You need to note that in order to make this formula function properly, you will have to provide all the information related to each and every single transaction, including its dates, purchase, cash inflows and outflows (redemption and installment), etc. You can easily access this information by going through the account statement given by the AMC or Asset Management Company.
Also, remember that all the SIP installments and lump-sum payments made while applying this formula will be regarded as negative values, which means you must insert a minus sign while writing these values. Similarly, the cash inflows (which are redemptions, dividends, and SWP) will be taken as positive values. In the above-mentioned formula, ‘guess’ is a discretionary input and is acknowledged as 0.1 by default.
If your mutual fund investments have not been redeemed yet and you want to calculate the XIRR of the said fund, then you will also have to put forward your present investment value along with the NAV or Net Asset value of the mutual fund to avoid confusion.
While you are writing down the transactions, remember not to include transactions such as dividend reinvestment because they are considered an actual cash flow. Furthermore, if the XIRR of the mutual fund is evaluated at the scheme level, then switches need to be viewed as redemption. Likewise, if the XIRR is measured on a portfolio basis, the switches are not considered.
Difference Between XIRR And CAGR
The biggest difference between XIRR and CAGR is that XIRR takes into account the timing and amount of each individual cash flow, while CAGR only considers the beginning and ending values of an investment.
| Parameters | XIRR | CAGR |
| Calculation | XIRR is calculated based on the average annualized return. | The CAGR is calculated based on the absolute annualized return. |
| Definition | The rate of return, known as XIRR, is the point at which all cash flows, both positive and negative, have a net present value of zero. | The compound annualized growth rate, or CAGR, is the rate that grows per year over a specified period of time. |
| Cash Flow | XIRR takes every transaction into account for a precise return rate calculation. | CAGR considers only the initial and final cash flows. |
| Accuracy | XIRR provides accurate returns. | CAGR may not account for all cash flows. |
| Investment Type | Ideal for investments with cash flows (e.g., SIP, SWP) | Ideal for one-time lump sum investments |
| Formula | “= XIRR (values, dates, guess)” | (Final Investment Value/Initial Investment Value)^(1/n) -1 |
| Short-term Returns | XIRR can calculate returns for short-term investments (<12 months). | CAGR cannot calculate returns for short-term investments. |
| Limitations | XIRR requires the final redemption value for an accurate calculation. | Does not account for all cash flows; may provide inaccurate results for some investments. |
Best XIRR Mutual Fund India
Here is a list of the best mutual fund that offers excellent XIRR in a single year:
| Scheme Name | NAV (Rs.) | AUM (Cr.) | 1Y XIRR (%) |
| Quant Small Cap Fund | 151.92 | Rs. 18,333.36 | 146.85 |
| PGIM India Midcap Opp Fund | 47.78 | Rs. 21,373.17 | 115.74 |
| Kotak Small Cap Fund | 184.23 | Rs. 2,79,111.82 | 137.82 |
| Quant Active Fund | 449.20 | Rs. 18,333.36 | 95.90 |
| PGIM India Flexi Cap Fund | 27.88 | Rs. 21,373.17 | 86.69 |
| IIFL Focused Equity Fund | 33.37 | Rs. 4,575.81 | 76.84 |
| SBI Small Cap Fund | 124.21 | Rs. 4,70,623.54 | 98.54 |
| Nippon India Small Cap Fund | 102.09 | Rs. 2,19,923.06 | 119.06 |
| Edelweiss Mid Cap Fund | 58.30 | Rs. 64,255.24 | 101.16 |
| Kotak Emerging Equity Fund | 85.53 | Rs. 2,79,111.82 | 99.78 |
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XIRR Meaning In Mutual Fund- Quick Summary
- XIRR is one of the most popular methods of finding out the rate of return of your investment in a mutual fund investment scheme (involving multiple transactions).
- With the help of XIRR or Extended Internal Rate of Return, you can easily find out the estimated worth of your investment.
- Applying the formula of XIRR is simple. All you have to do is to open a Microsoft Excel sheet and use the formula to calculate the outcome of your investment.
- XIRR puts emphasis on every single transaction, including the inflow and outflow to provide you with the most accurate return rate for your investment.
- Retail investors or those who use systematic investment plan methods for investing in a mutual fund scheme can use XIRR to get an exact return rate. This can help them plan their investments and financial goals accordingly.
XIRR Meaning In Mutual Fund- Frequently Asked Questions
1. What is a good XIRR for mutual funds?
The XIRR rate differs according to the type of mutual fund you invest in. For example, in India, if you are investing in an equity mutual fund, then a good equity mutual can offer you 11% to 14% XIRR. For debt mutual funds, the XIRR can range between 7% to 9%.
2. Is XIRR return per annum?
Yes, the return rate of XIRR is annualized. With the help of XIRR, you will be able to receive accurate returns if your monthly investments are compounded annually. This calculation method can be extremely helpful if you are doing periodic investments in a mutual fund scheme and it takes into consideration every single cash inflow and outflow while measuring the return on your investment.
3. Which is better: CAGR or XIRR?
Both CAGR and XIRR are excellent methods for calculating your return on investment. Compound Annual Growth Rate or CAGR helps you evaluate the performance of your mutual fund investment when it comes to a one-time lump sum investment. On the other hand, XIRR is an ideal method if there are multiple transactions involved in your investment which can generally be found in SIP.
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