What XIRR actually means for your SIP
CAGR gets used everywhere in mutual fund marketing. It looks clean: your fund returned 14.2% CAGR over 5 years. But for a SIP investor, that number is misleading. CAGR assumes your entire investment was sitting in the fund from day one. Your SIP wasn’t.
Your first ₹5,000 has been compounding for 60 months. Your second ₹5,000 for 59 months. Your most recent ₹5,000 for exactly one month. XIRR handles this correctly by treating each cash flow as a separate investment on its actual date.
This is why XIRR is the only number that matters for SIP performance. AMCs are now required to report XIRR in CAMS and Kuvera statements for exactly this reason.
XIRR vs CAGR: a quick example
Take a ₹5,000 monthly SIP for 5 years (₹3 lakh invested). If the current value is ₹4.8 lakh, the numbers look like this:
- Absolute return: 60% (calculated as 1.8L gain / 3L invested)
- CAGR: ~9.9% (treats ₹3L as invested 5 years ago)
- XIRR: ~20.4% (correctly accounts for monthly cash flows)
XIRR looks much higher than CAGR here. This is expected, and correct. The average rupee was only invested for about 2.5 years, not 5.
What counts as a good XIRR
A simple benchmark: if your equity SIP XIRR is below 10%, you should review the fund choice. Nifty 50 index funds have delivered around 12–13% XIRR over most 10-year rolling periods. Actively managed large-cap funds that charge 1–1.5% expense ratio need to clear at least 13–14% just to justify the fee over an index.
For debt funds: compare against your FD rate. A liquid fund returning 7.5% XIRR when your FD is at 7% is barely worth the complexity.
How to use the custom cash flows mode
The SIP mode assumes equal monthly investments. If your reality is messier — you missed some months, you added a lumpsum once, or you partially redeemed — use Custom Cash Flows.
The calculator adds today’s date as the final positive cash flow automatically. Sort your entries by date (oldest first) for the most accurate result.
Why XIRR can look very high for short-duration SIPs
If you started a SIP 12 months ago and markets have done well, your XIRR might show 40–50%. This looks impressive but it is partly a math artefact. The average investment has only been deployed for 6 months, so even a modest 20% absolute gain annualises to a very high XIRR. Give it 5–7 years before drawing conclusions.
For lumpsum investments, XIRR and CAGR will be identical since there is only one cash flow date.