XIRR vs CAGR — which return metric to use
XIRR and CAGR measure returns differently. XIRR suits SIPs with multiple cash flows; CAGR works for lump-sum investments. Learn which to use and when.
You’ve probably seen both these terms on your Groww dashboard or in a mutual fund factsheet and quietly moved on. Fair enough — they sound technical, and nobody wants to feel like they’re reading a CA exam paper just to check if their SIP is doing okay.
But here’s the thing: using the wrong metric to judge your investment is like checking your car’s mileage on a road trip without accounting for the traffic jams. The number you see isn’t wrong — it’s just not telling you the full story.
What CAGR Actually Means
CAGR stands for Compounded Annual Growth Rate. In plain English, it tells you the steady annual rate at which a lump sum investment would have grown to reach its current value.
Say you put ₹1,00,000 into a Nifty 50 index fund in January 2019 and it’s now worth ₹2,10,000 in January 2024 — that’s five years. The CAGR works out to roughly 16% per year. Not every year was 16%, but if it had grown at exactly that pace each year, you’d land at ₹2,10,000. That’s all CAGR is: a smoothed-out annual growth rate for a single investment made on a single date.
CAGR is clean, easy to calculate, and perfect for comparing two funds against each other — or against an index like Nifty 50. It answers the question: “How fast did this money grow?”
Where CAGR Falls Apart
CAGR has one big limitation — it only works cleanly when money goes in once and comes out once.
The moment you start doing what most salaried people actually do — an SIP of ₹5,000 every month into Parag Parikh Flexi Cap on Kuvera — CAGR starts lying to you. Each of those monthly instalments was invested at a different time, at a different NAV (Net Asset Value — basically the per-unit price of the fund). The ₹5,000 you invested in January 2021 has had four years to grow. The ₹5,000 from last month has had four weeks.
Calculating a single CAGR across all those investments ignores the timing completely. You’d end up with a number that’s either too flattering or too harsh depending on when the market happened to be up or down. It’s not a useful number.
What XIRR Fixes
XIRR — Extended Internal Rate of Return — is the metric built specifically for investments with multiple cash flows happening at different times. It factors in exactly when each rupee went in and when it came out, then calculates the annualised return that makes all of that consistent.
It’s the metric your SIP actually deserves.
Here’s a concrete example. Suppose you’ve been running a ₹10,000/month SIP in HDFC Mid Cap Opportunities Fund for two years — that’s ₹2,40,000 invested in total. Your current portfolio value is ₹2,85,000. A naive CAGR calculation might show something around 18%, which sounds great. But XIRR — which accounts for the fact that your later instalments had far less time to grow — might show something closer to 13–14%. That’s still a solid return, but it’s the honest number.
Groww, Zerodha Coin, and Kuvera all use XIRR when showing you your SIP returns. When you see “returns” on your SIP dashboard, that’s XIRR. Good — it should be.
When to Use Which
Here’s the simple rule: use CAGR for lump sum investments, use XIRR for SIPs and anything with irregular cash flows.
If you put ₹50,000 into SBI Bluechip Fund as a one-time investment three years ago, CAGR tells you exactly how it performed. If you want to compare that fund to ICICI Prudential Bluechip Fund over the same three-year period, CAGR is the right tool — both funds were measured the same way, so the comparison is fair.
But if you’re reviewing your monthly SIP portfolio — which is most working Indians between 25 and 40 — XIRR is the only number worth looking at. It’s also the right metric if you’ve done top-ups, made ad-hoc purchases during market dips, or redeemed partially at some point.
| Situation | Right Metric |
|---|---|
| Lump sum investment, single entry and exit | CAGR |
| Monthly SIP, ongoing | XIRR |
| SIP with top-ups or partial redemptions | XIRR |
| Comparing two funds over the same period | CAGR |
| Checking your actual portfolio return | XIRR |
The Bottom Line
If you’re a salaried person investing through monthly SIPs — say ₹14,000/month spread across two or three mutual funds on Kuvera or Groww — the return number on your dashboard is already XIRR. Trust that number. Don’t try to manually calculate CAGR and wonder why it looks different.
Use CAGR when you’re comparing funds in research mode. Use XIRR when you’re evaluating how your own portfolio is actually doing. They’re not rivals — they answer different questions.
Frequently Asked Questions
Is XIRR always lower than CAGR for the same investment?
Not always, but in a rising market it usually is — because newer SIP instalments have had less time to grow, which pulls the overall return down. In a falling market, XIRR can actually look better than CAGR for the same reason.
Can I calculate XIRR myself without a finance app?
Yes — Excel and Google Sheets both have a built-in =XIRR() function. You list each cash flow (SIP amounts as negatives, final value as a positive) alongside the dates, and the formula does the rest. Most apps like Groww and Kuvera calculate it for you automatically.
Why do fund factsheets show CAGR and not XIRR?
Because factsheets are showing the fund’s performance, not your personal returns. A fund’s historical performance is measured from a single start date to a single end date — that’s a lump sum scenario by definition, so CAGR is the right tool there.
My XIRR shows 11% but my fund’s 3-year CAGR is 18%. Am I doing something wrong?
Probably not — this is completely normal. If you started your SIP in the last year or two, most of your money hasn’t had time to benefit from the fund’s longer-term growth. The CAGR of 18% is the fund’s track record; your XIRR of 11% is what your specific investment timing earned you.
Does XIRR account for taxes on my mutual fund gains?
No — XIRR shows your pre-tax return. For equity mutual funds held over a year, long-term capital gains above ₹1.25 lakh are taxed at 12.5% (as per current rules post the 2024 Budget). Your actual post-tax return will be slightly lower than your XIRR figure.