Definition of XIRR (Extended Internal Rate of Return)
XIRR (Extended Internal Rate of Return) is the most accurate way to calculate returns on investments with irregular or multiple cash flows — making it the standard metric for evaluating SIP performance, where you invest different amounts at different times.
Unlike simple returns or even CAGR (which works for lump-sum investments), XIRR accounts for the exact timing of each investment and redemption. All major mutual fund platforms (AMFI, Groww, Zerodha, ET Money) display XIRR as the return metric for SIP investments.
A simple way to think about XIRR: if your SIP portfolio shows 14% XIRR, it means your money grew at an effective annual rate of 14% — accounting for the specific dates and amounts of each SIP instalment. Comparing SIP returns using XIRR is far more meaningful than looking at absolute returns or even point-to-point returns.