August 10, 2023

# XIRR Meaning In Mutual Fund

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.

## 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.

## Best XIRR Mutual Fund India

Here is a list of the best mutual fund that offers excellent XIRR in a single year:

Do you want to expand your knowledge about mutual funds? We’ve got a list of must-read blogs that will help you do just that. Just click on the articles to find out more.

## 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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