what is xirr in mutual fund

What Is XIRR? A Simple & Practical Explanation Every Investor Must Understand

You invested money regularly. The market went up, went down, SIPs continued, and after a few years you see a return number called XIRR. But what does it really mean? Is it good? Is it bad? And why doesn’t it match what you expected?

What Is XIRR? (In Very Simple Words)

XIRR stands for Extended Internal Rate of Return. In simple terms:

XIRR tells you the real annual return on your investment when you invest money at different times.

Most of us don’t invest a lump sum just once. We invest:

• Monthly SIPs
• Occasional lump sums
• Withdraw partially sometimes

Because money goes in and out on different dates, normal return calculations don’t work properly. That’s where XIRR comes in.

Why Normal Return % Can Be Misleading

Suppose you invested ₹1,00,000 over 2 years through SIPs and today your value is ₹1,20,000.

You might think:

“Hey, I earned 20% in 2 years → 10% per year!”

❌ Wrong assumption.

You did not invest ₹1,00,000 on day one. Some money was invested later and got less time to grow.

XIRR corrects this mistake.

A Simple XIRR Example (Easy to Understand)

Date	Cash Flow
1 Jan 2023	-₹10,000
1 Feb 2023	-₹10,000
1 Mar 2023	-₹10,000
1 Jan 2025	+₹40,000

You invested ₹30,000 gradually and got ₹40,000 later.

XIRR considers: ✔ Amount invested ✔ Exact date of investment ✔ Date of withdrawal

Your XIRR might come to around 17–18%, which is your true annual return.

How Is XIRR Different from CAGR?

Feature	XIRR	CAGR
Best for	SIPs & irregular investments	Single lump sum investment
Multiple dates?	Yes	No
Accuracy for SIPs	Very accurate	Misleading
Used by	Mutual fund platforms	FDs, lump sum funds

What Is Considered a Good XIRR?

A “good” XIRR depends on:

• Asset type (equity, debt, hybrid)
• Time period
• Market conditions

XIRR Range	Meaning
Below 6%	Poor (below inflation)
6% – 8%	Average (like debt funds)
9% – 12%	Good (balanced investing)
13% – 15%	Very good (equity SIPs)
15%+	Excellent (long-term equity)

⚠️ High XIRR for short periods can be misleading. Always judge XIRR over 5+ years.

Why XIRR Changes Frequently

Your XIRR is not fixed because:

• Markets move daily
• New SIP installments are added
• Recent investments have less time to grow

This is normal and not a problem.

Common XIRR Myths

Myth 1: XIRR should always increase ❌

Truth: Market corrections can temporarily reduce XIRR ✔

Myth 2: Negative XIRR means failure ❌

Truth: Early years of SIPs often show negative XIRR ✔

When Should You Use XIRR?

• SIP investments
• Multiple deposits
• Partial withdrawals
• Portfolio performance tracking

Final Thoughts

XIRR is the most honest way to measure how your money is really performing. Ignore short-term fluctuations. Focus on long-term discipline and asset allocation.

If you understand XIRR, you understand investing.