XIRR vs CAGR: Which One Actually Measures Your Returns?
25 May 2026 · 7 min read · Educational
The 30-second answer
- CAGR = how a single lump-sum investment grew, annualised.
- XIRR = how a series of irregular cash flows grew, annualised.
- If you have a SIP, EMI prepayments, additional top-ups, or partial withdrawals — you need XIRR. CAGR will mislead you.
CAGR — the simple case
Formula: CAGR = (Final / Initial)^(1/years) − 1
Example: you invested ₹1,00,000 in Jan 2020. It is worth ₹1,76,234 in Jan 2026 (6 years).
CAGR = (1,76,234 / 1,00,000)^(1/6) − 1 = 9.94%.
This is correct. It says: “if this had grown at a constant 9.94% per year for 6 years, it would have reached the same final value.”
Where CAGR breaks
The moment you add more money mid-way — or pull some out — CAGR becomes nonsense, because the formula assumes a single deposit at the start.
Example: SIP of ₹10,000/month for 5 years (₹6 lakh total invested), ending value ₹8,40,000. People often compute (8.4 / 6)^(1/5) − 1 = 6.96% and call it CAGR. This is wrong. Your last installment was invested for one month, not five years. The actual money-weighted return is closer to 13–14%.
XIRR — the right tool
XIRR (Extended Internal Rate of Return) is the discount rate that makes the net present value of all cash flows (in and out) equal to zero. It correctly accounts for when each rupee entered or left.
Spreadsheet syntax:
=XIRR(values, dates)where values is a column of cash flows (outflows as negative, inflows as positive, ending value as a positive on the last date), and dates is the matching column of dates.
Worked example, side by side
| Date | Cash flow (₹) | Comment |
| 01-Jan-2021 | – 1,20,000 | SIP of 10k for first year (simplified to annual) |
| 01-Jan-2022 | – 1,20,000 | Year 2 SIP |
| 01-Jan-2023 | – 1,20,000 | Year 3 |
| 01-Jan-2024 | – 1,20,000 | Year 4 |
| 01-Jan-2025 | – 1,20,000 | Year 5 |
| 01-Jan-2026 | + 8,40,000 | Final corpus |
- Total invested: ₹6,00,000
- Final value: ₹8,40,000
- Total gain: ₹2,40,000 (40% absolute)
- Naive CAGR: (8.4/6)^(1/5) − 1 = 6.96% ❌
- True XIRR: ≈ 13.4% ✅
If you used the naive CAGR you would seriously underestimate the fund’s performance.
When does each metric belong?
| Use CAGR when… | Use XIRR when… |
| A single lump sum, no top-ups, no withdrawals | Any SIP / STP / SWP situation |
| Comparing index returns (e.g., NIFTY did 12% CAGR) | Measuring your personal portfolio return |
| A fund’s NAV history over a period | Real estate with rental income + repairs + sale |
| A bond held to maturity | EPF, PPF with annual contributions |
Common mistakes we see
- Mixing scheme CAGR with personal XIRR. A fund’s 15% CAGR is not the 15% you earned via SIP — your XIRR will be different.
- Forgetting the sign convention. Outflows must be negative, inflows positive. Excel will silently return wrong answers if you flip them.
- Ignoring taxes and exit loads. Apply XIRR to post-tax cash flows for the real picture.
- Comparing 1-year XIRR to long-term equity CAGR. Short-window XIRRs are noisy.
Try it yourself
Our SIP calculator uses the same money-weighted logic XIRR is built on. You can plug in your own numbers and see how the answer changes when you shift contributions.
Educational only. Epicenter Exchange is not a SEBI registered investment adviser.