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Calculate the annualized internal rate of return (XIRR %) for investments with multiple cash flows and irregular dates.
Add transaction dates and amounts to evaluate annualized internal rate of return
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Extended Internal Rate of Return (XIRR) is a financial metric used to calculate the annualized return on investments where cash flows occur at irregular or multiple dates. Unlike CAGR, which only measures growth between a single beginning and ending value, XIRR is the standard method for evaluating mutual fund SIPs, lump sums with subsequent additions, or portfolios with staggered withdrawals. It represents the true compounding return rate of every rupee invested, adjusting for the precise amount of time it was in the portfolio.
The XIRR rate is determined by solving for R such that the Net Present Value (NPV) of all cash flows (both positive and negative) equals zero. The equation is represented as:
Where CF_j represents the cash flow amount of transaction j (investments are entered as negative values, withdrawals/returns as positive values), d_j represents the transaction date, d_1 is the initial investment date, and R is the annualized XIRR rate. Since R cannot be isolated analytically, a numerical root-finding algorithm (such as Newton-Raphson or Secant method) is used to iteratively solve the equation.
Example 1 (SIP Return): You start a monthly SIP of ₹10,000 on January 1, 2024. You invest ₹10,000 on the 1st of every month for 12 months (total invested = ₹1,20,000). On January 1, 2025, your portfolio balance is ₹1,30,000. Entering these 12 negative outflows of ₹10,000 and 1 positive inflow of ₹1,30,000 yields an XIRR of 15.82%.
Example 2 (Lumpsum & Withdrawal): You invest ₹5,00,000 on June 1, 2023. On June 1, 2024, you withdraw ₹50,000. On June 1, 2025, you redeem the entire remaining balance of ₹5,60,000. Entering ₹-5,00,000, ₹50,000, and ₹5,60,000 on their respective dates yields an XIRR of 10.45%.
A: CAGR works only for a single investment value at the start and end (e.g. lumpsum held without any changes). XIRR is designed for multiple cash flows at irregular intervals (such as monthly SIPs, top-ups, or systematic withdrawals).
A: Investments represent money leaving your pocket (cash outflow), while withdrawals or ending balances represent money returning to you (cash inflow). In financial mathematics, outflows must be negative and inflows must be positive to find the rate where net present value equals zero.
A: An XIRR of 12% to 15% is generally considered excellent for equity mutual funds over a long-term horizon (5+ years). For debt funds, a good XIRR ranges from 6% to 8% depending on the prevailing interest rate cycle.