Home / Financial Dictionary /XIRR (Extended IRR)

XIRR (Extended IRR)

Definition

The Extended Internal Rate of Return (XIRR) in mutual funds is a financial metric used to calculate the annualised return on an investment when multiple cash flows occur at different times.

What is XIRR in Mutual Funds?

The Extended Internal Rate of Return (XIRR) is a method for calculating the annualised return on mutual fund investments when cash flows occur at different times and in varying amounts. Compared to simple return calculations, XIRR considers the exact date and amount of every cash flow to measure the performance of investments made through Systematic Investment Plans (SIPs), lump-sum investments, Systematic Withdrawal Plans (SWPs), or partial withdrawals or redemptions.

The XIRR formula in Microsoft Excel and Google Sheets is: =XIRR (values, dates, [guess])*

*values = the series of cash inflows and outflows

dates = the exact dates corresponding to each cash flow

Guess = an approximate estimate of the expected rate of return

How Does XIRR Work in Mutual Funds?

Tracks Every Cash Flow (Investment & Withdrawal)
Considers the Exact Date of Each Transaction
Includes the Current Portfolio Value
Calculates Annualised Returns
Accounts for Irregular Cash Flows
Helps Compare Mutual Fund Returns Accurately
Works Best for SIPs and Multiple Investments

XIRR vs CAGR in Mutual Funds

Particulars	XIRR	CAGR
Full Form	Extended Internal Rate of Return	Compound Annual Growth Rate
Calculation	Tracks the exact date and amount of every inflow and outflow	Considers the initial and final value only
Best Used For	SIPs, SWPs, or portfolios with multiple transactions over time	One-time / lump-sum investments
Accuracy	More accurate for irregular cash flows	Less accurate for irregular cash flows
Formula	`=XIRR(values, dates, [guess])	CAGR = [(Final Value ÷ Initial Value)^(1 ÷ n)] − 1`

FAQs

What is XIRR in mutual funds?

The Extended Internal Rate of Return, or XIRR, is a method for calculating the annualised return on mutual fund investments when cash flows occur at different times and in varying amounts.

What is the formula for XIRR?

In Microsoft Excel and Google Sheets, the formula for XIRR in mutual funds is =XIRR (values, dates, [guess]).

What is a good and bad XIRR in mutual funds?

An XIRR above 15% represents very strong performance, and below 8% may indicate underperformance in mutual funds.

Is XIRR better than CAGR?

XIRR and CAGR serve different purposes. CAGR is perfect for measuring a single, one-time investment over a fixed period, while XIRR is the better choice for investments with multiple cash flows at different times.

How is XIRR different from Absolute Return?

Absolute Return reflects the total percentage gain or loss on an investment, regardless of the investment period. In contrast, XIRR considers the exact date and value of each cash flow to calculate the annualised return.

Browse all keywords