What is XIRR in Mutual Fund?
Mutual funds are one of the most popular ways to build long-term wealth in India. Many investors invest through SIPs, add lump sums when they have extra money, and sometimes withdraw a portion when they need funds. Because of these multiple transactions happening on different dates, calculating the actual return from mutual funds is not as simple as it looks.
This is where XIRR in mutual fund investments becomes important. XIRR helps you understand the real annual return on your investment by considering both the amount invested and the exact time when each investment was made.
In this guide, we will clearly explain the XIRR meaning in mutual funds, how it works, how to calculate it with an example, how it is different from CAGR, and how you can use XIRR to make better investment decisions.
What Is XIRR in Mutual Fund?
The full form of XIRR is Extended Internal Rate of Return. It is a method used to calculate annualised returns when investments are made at irregular intervals.
Unlike fixed deposits or one-time investments, mutual fund investing usually involves multiple transactions such as monthly SIPs, occasional lumpsum investments, partial withdrawals, and dividend payouts. Since all these cash flows happen on different dates, normal return formulas cannot give an accurate picture of performance.
XIRR in mutual fund calculations solves this problem by considering both the amount and the date of every cash flow. It then converts the overall return into a single annual percentage, which shows how your money has actually grown every year on average.
That is why almost all mutual fund platforms like Groww, Zerodha Coin, Paytm Money, and CAS statements show XIRR instead of simple returns.
Why Normal Return Calculation Does Not Work for SIP Investors
When you invest through SIPs, every instalment is invested on a different date and at a different NAV. Your first SIP may stay invested for 3 years, while your last SIP may be invested only for a few months.
If you simply compare total invested amount with current value, you will not know how efficiently your money worked over time. Two investors in the same fund can have very different returns depending on when they invested.
That is why XIRR is the most accurate way to measure SIP and portfolio performance.
XIRR Example in Mutual Fund (Simple SIP Scenario)
Let’s understand this with a simple example.
Suppose you invest ₹5,000 every month in a mutual fund for one year.
You invested:
₹5,000 on 1 Jan 2025
₹5,000 on 1 Feb 2025
₹5,000 on 1 Mar 2025
…
₹5,000 on 1 Dec 2025
So your total investment becomes ₹60,000.
Now on 1 Jan 2026, the total value of your investment becomes ₹66,000.
If you calculate simple return, it looks like you earned ₹6,000 on ₹60,000, which is 10%. But this is misleading because your full money was not invested for the full year.
XIRR considers that:
• January SIP was invested for 12 months
• December SIP was invested only for 1 month
After adjusting for time, XIRR may show something like 14% annual return, which reflects your true performance. This is why XIRR always gives a more realistic picture of returns than simple percentage gain.
How to Calculate XIRR in Excel or Google Sheets
You do not need to manually calculate complex formulas. Excel and Google Sheets can do it easily.
First, create two columns.
In the first column, write all transaction dates.
In the second column, write cash flow amounts.
When you invest money, write the amount as negative.
When you receive money or check current value, write it as positive.
For example:
1 Jan 2025 -5000
1 Feb 2025 -5000
1 Mar 2025 -5000
…
1 Jan 2026 66000
Then use this formula:
=XIRR(values, dates)
Select the full cash flow column as values and date column as dates. The result you get is your annualised XIRR return.
Most investors, however, do not need Excel because mutual fund apps and CAS statements already show XIRR automatically.
XIRR vs CAGR: What Is the Difference?
Many investors get confused between XIRR and CAGR, but both are used in different situations.
CAGR works well only when:
• You invest once
• You withdraw once
• There are no intermediate cash flows
So CAGR is suitable for lump sum investments.
XIRR is required when:
• You invest multiple times
• You invest through SIPs
• You withdraw partially
• Dividends are paid
So for almost all real-life mutual fund portfolios, XIRR is the correct method, not CAGR.
That is also why two people investing in the same fund may see different XIRR returns, because their investment dates and amounts are different.
What Is a Good XIRR for Mutual Funds in India?
There is no fixed number that is good for everyone, but some general expectations help in judging performance.
For long-term equity mutual funds, an XIRR of around 12% to 15% is considered healthy over market cycles.
For hybrid funds, XIRR usually ranges between 8% to 10%.
For debt mutual funds, long-term XIRR of around 6% to 8% is reasonable.
If your XIRR is lower than expected, it does not always mean the fund is bad. Market cycles, entry timing, and investment horizon also play a big role.
That is why XIRR should be checked over long periods, not just a few months.
Why Does XIRR Change Every Month?
Many investors notice that their XIRR keeps changing regularly, even when they do not invest or withdraw.
This happens because:
• Market value of units changes daily
• Your investment duration increases every day
• New SIP instalments get added
Since XIRR is time-based, even small NAV movements or new transactions can change the return percentage.
So short-term XIRR fluctuations are normal and should not be a reason for panic.
Does Dividend or Withdrawal Affect XIRR?
Yes, any money that comes into or goes out of your portfolio affects XIRR.
If you receive dividends, that becomes a positive cash flow and increases XIRR.
If you redeem units, that also becomes a cash inflow and changes your return calculation.
That is why XIRR always reflects your actual personal investment journey, not just the fund’s performance.
How Investors Should Use XIRR in Portfolio Planning
XIRR is not just a number to look at. It helps in making smarter financial decisions. When you compare different funds in your portfolio, XIRR tells you which investments are truly working for you. If one fund consistently shows low XIRR compared to others in the same category, it may be time to review it.
XIRR also helps in goal tracking. If your retirement goal needs 12% returns and your portfolio XIRR is only 8%, then you may need to increase investment amount or adjust asset allocation.
For SIP investors, XIRR helps in understanding whether your regular investing strategy is delivering expected results over time. It also helps in tax planning because it shows real returns before tax, helping you estimate future capital gains more accurately.
Frequently Asked Questions
Can XIRR be negative?
Yes, if your current investment value is lower than the total invested amount, XIRR will be negative. This usually happens during market corrections or short-term investments.
Is XIRR calculated before tax or after tax?
XIRR is calculated before tax. Capital gains tax is not included in the return calculation.
Should I stop SIP if XIRR is low?
Not necessarily. SIPs work best when continued during market downturns. Short-term low XIRR does not mean long-term goals are in danger.
Is XIRR useful for comparing different investors?
No. XIRR is personal. It depends on when and how much each investor invested, so comparisons should only be done within your own portfolio.
Conclusion
XIRR in mutual funds gives investors the most accurate picture of how their money is actually growing over time. Unlike simple return calculations, XIRR considers every investment, every withdrawal, and the exact duration for which money stayed invested.
Whether you invest through SIPs, lump sums, or a mix of both, XIRR helps you understand the real annual performance of your portfolio. It also helps in comparing funds, tracking financial goals, and making informed decisions about rebalancing and future investments.
Once you start using XIRR properly, you move from guessing your returns to truly understanding how your investments are performing — which is a big step towards smarter and more confident investing.