CAGR vs XIRR: How to Calculate Mutual Fund Returns

You invested in a mutual fund two years ago.

Today the value is higher than what you put in. But how much higher in a way that actually means something is a question most investors cannot answer precisely.

Two numbers exist for this. CAGR and XIRR.

They are not interchangeable. They measure different things and using the wrong one gives you a number that looks right but tells you almost nothing useful about how your investment actually performed.

Here is everything you need to know about both.

What Is CAGR?

CAGR stands for Compound Annual Growth Rate.

It measures the rate at which a single lump sum investment has grown year over year from the start date to the end date.

The formula is:

CAGR = (Ending Value / Beginning Value) ^ (1 / Number of Years) — 1

Example:

You invest ₹1,00,000 in a mutual fund in January 2021. By January 2026, five years later the value is ₹1,76,234.

CAGR = (1,76,234 / 1,00,000) ^ (1/5) — 1 = 12% per year

This tells you the fund grew at a consistent 12% annual rate, as if it compounded smoothly every year without any volatility in between.

CAGR is clean, simple, and easy to compare across funds and time periods. It is the number most fund houses use when presenting historical returns and the number that appears on most mutual fund fact sheets.

What CAGR Does Not Tell You

CAGR works perfectly for a single lump sum investment held from start to finish.

It breaks down the moment you add money along the way which is exactly what every SIP investor does.

Imagine you invest ₹10,000 per month for three years. Each instalment is invested at a different NAV. Some months you buy more units because the market is lower. Some months fewer because the NAV is higher. The money invested in month one has been compounding for three years. The money invested in month thirty-six has been compounding for one month.

Applying a single CAGR to this situation gives you a number that is mathematically inaccurate because it ignores the timing of each individual investment.

This is where XIRR comes in.

What Is XIRR?

XIRR stands for Extended Internal Rate of Return.

It accounts for the exact timing and amount of every cash flow; every SIP installment, every additional investment, every partial redemption and calculates the annualised return that makes the present value of all cash flows equal to zero.

In simple terms XIRR gives you the true annualised return on your actual investment pattern. Not a hypothetical lump sum. Your real money. At the real times it was invested.

How XIRR works 

You invest ₹10,000 per month for 12 months, a total of ₹1,20,000.
After 12 months the portfolio value is ₹1,35,000.

CAGR on the total invested amount would show approximately 12.5% but this is misleading because your last installment has only been invested for one month.

XIRR correctly accounts for each instalment's holding period and gives you a more accurate annualised return in this case closer to 20-22% because the earlier instalments have compounded longer and the calculation weights each one correctly.

CAGR vs XIRR — Key Differences

How to Calculate XIRR

XIRR is calculated using Microsoft Excel or Google Sheets, not manually.

Step 1: Create two columns. One for dates, one for cash flows.

Step 2: Enter every SIP instalment as a negative number because it is money going out of your account. Enter the current portfolio value as a positive number because it is money coming back to you.

Step 3: Use the XIRR formula: =XIRR(values, dates)

Example:

Enter = XIRR(B1:B6, A1:A6) and the result gives you your annualised return.

Most mutual fund portfolio tracking apps, including those offered by major brokers, calculate XIRR automatically once you sync your portfolio.

Which Should You Use?

Use CAGR when:

• Comparing a fund's historical performance over a defined period

• Evaluating a lump sum investment you made on a single date

• Reading and comparing mutual fund fact sheets

Use XIRR when:

• Calculating the return on your SIP portfolio

• Evaluating investments where you added or withdrew money at different times

• Getting an accurate picture of what your actual money has actually earned

For most retail investors in India who invest primarily through SIPs; XIRR is the more relevant and more accurate number.

A fund's published CAGR tells you how the fund performed.

Your XIRR tells you how you performed given the specific dates and amounts of your actual investments.

Both matter. They answer different questions.

FAQs

Is XIRR always higher than CAGR for SIPs?

Not always. XIRR can be higher or lower than a simple CAGR comparison depending on the timing of your investments relative to market performance. If you invested more during a market high and less during a low; XIRR could be lower than the fund's published CAGR.

Can I calculate XIRR without Excel?

Yes. Most mutual fund platforms, portfolio trackers, and apps calculate XIRR automatically. You can also use online XIRR calculators by entering your investment dates and amounts.

Why does my fund's fact sheet show a different return than my portfolio statement?

The fact sheet shows CAGR, how the fund performed. Your portfolio statement shows XIRR, how your money performed based on when you invested. The difference is almost always explained by the timing of your SIP installments.

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