A method to calculate annualised returns on investments with multiple, irregular cash flows — the standard measure for SIP performance.
XIRR (Extended Internal Rate of Return) calculates the annualised return for a series of cash flows occurring at different dates. It is the preferred method for evaluating SIP returns, partial redemptions, and any irregular investment schedule.
CAGR works when you invest once. XIRR works when you invest many times. If you've done a 3-year SIP with 36 monthly instalments and partial redemptions, XIRR uses the dates and amounts of every transaction to give you one single annualised return figure.
XIRR solves for the discount rate that makes the net present value (NPV) of all cash flows equal to zero.
Outflows (investments) are entered as negative values; inflows (redemptions + current value) as positive.
The equation is solved iteratively — computers do this instantly using XIRR in Excel or Google Sheets.
The result is an annualised percentage return that accounts for the timing of every cash flow.
∑ [ Ci ÷ (1 + XIRR) ^ ((di − d1) ÷ 365) ] = 0You invest ₹10,000/month for 12 months (total ₹1,20,000). At end of year, portfolio value = ₹1,30,000. Simple return = (1,30,000 − 1,20,000) / 1,20,000 = 8.3% But XIRR = ~15.7% Why? The first instalment was invested for 12 months; the last only 1 month. XIRR properly weights the time each rupee was deployed.