Your mutual fund statement shows gains—but which number tells the real story? CAGR works for one-time lump sums; XIRR is what you need for SIPs and irregular flows. Regulators like SEBI and AMFI require funds to show both CAGR and point-to-point returns on a ₹10,000 investment. Here’s when to use each metric and how the math works.
CAGR: For Single Lump-Sum Investments
CAGR (Compound Annual Growth Rate) annualizes the return between a start and end value: CAGR = (Final ÷ Initial)^(1 ÷ Years) − 1. It assumes one deposit at the start and one withdrawal at the end—no interim flows. It smooths out volatility to give a single annual rate.
Example: ₹1,00,000 invested in 2018, redeemed ₹1,50,000 in 2023. CAGR = (150 ÷ 100)^(1 ÷ 5) − 1 ≈ 8.45% per year. Use our CAGR Calculator for quick results. For more on CAGR vs absolute return, read CAGR vs Absolute Return.
XIRR: For SIPs and Multiple Cash Flows
XIRR (Extended Internal Rate of Return) finds the annualized rate that makes the net present value of all cash flows zero. It uses the dates of each investment and withdrawal—so a ₹1,000 SIP in month 1 is weighted differently from one in month 36. For SIPs, partial redemptions, or irregular top-ups, XIRR is the correct measure.
Example: ₹1,000 invested on 1st of each month for 3 years (total ₹36,000), final value ₹40,000. A naive CAGR = (40 ÷ 36)^(1 ÷ 3) − 1 ≈ 3.6%—that treats all ₹36k as if invested at day one. The actual XIRR is ~6.9%, because later installments had less time to compound. XIRR reflects your real return.
Read What is XIRR in Mutual Funds for the full picture, or use our XIRR Calculator.
Worked Examples
Lump sum (single flow)
- ₹1,00,000 (2018) → ₹1,50,000 (2023)
- CAGR: (150 ÷ 100)^(1 ÷ 5) − 1 = 8.45%
- XIRR: 8.45% (same—only one in and one out)
SIP (multiple flows)
- ₹1,000 on Jan 1 each of 2020, 2021, 2022; redeem ₹3,900 on Jan 1, 2023
- Naive CAGR: (3.9 ÷ 3)^(1 ÷ 3) − 1 ≈ 9.1% (misleading)
- XIRR: ~10.48% (true annualized return)
Irregular flows
- ₹20k (2020), ₹20k (2021), withdraw ₹10k (Jun 2021), redeem ₹50k (2024)
- Pretend CAGR: (50 ÷ 40)^(1 ÷ 4) − 1 ≈ 5.74%
- XIRR: ~14.37% (correct—accounts for timing)
Which Metric to Use When
| Scenario | Use |
|---|---|
| One-time lump sum, held >1 year | CAGR |
| Monthly SIP or irregular contributions | XIRR |
| Partial withdrawals + final redemption | XIRR |
| Short-term (<1 year) | Absolute return (no annualization) |
Why Don’t Compare SIP XIRR to Fund CAGR?
A fund’s 5-year CAGR assumes a single investment at the start. Your SIP put money in over 60 months—so some of it had far less time to grow. Your XIRR and the fund’s CAGR answer different questions. Don’t expect them to match.
Tax and Regulatory Notes (India)
Tax is on the absolute capital gain (end value − cost). Equity fund LTCG (held >1 year) is 12.5% above ₹1.25 lakh/year; STCG (<1 year) is 20%. Debt funds are taxed at your slab. CAGR and XIRR from fact sheets are pre-tax.
SEBI requires mutual funds to show both CAGR and point-to-point returns on ₹10,000 in ads. This helps investors see both the annualized rate and the raw growth.
Frequently Asked Questions
- Why is my SIP XIRR lower than the fund’s CAGR? The fund’s CAGR assumes a single lump sum at the start. Your SIP spread investments over time—later installments had less time to compound. XIRR reflects your actual timing; CAGR reflects a hypothetical one-time investment.
- Does XIRR account for exit loads and taxes? Standard XIRR uses NAV or redemption amounts you enter. If you want realized return after exit load and tax, use the net amount you actually received in the XIRR calculation.
- Can I use CAGR for my SIP? No. CAGR assumes one in-flow and one out-flow. For SIPs with many installments, use XIRR—it accounts for each cash flow’s date.
- What Excel formula do I use for XIRR? Use
=XIRR(values, dates). Put investments as negative values and redemptions as positive, with corresponding dates in a second column.
Your Next Steps
Use CAGR for lump sums and fund comparisons; use XIRR for SIPs and irregular flows. For lump-sum planning, try our Lumpsum Calculator and CAGR Calculator. For SIPs, use our SIP Calculator and XIRR Calculator.