What is XIRR?

Extended Internal Rate of Return (XIRR)

It’s a tool for calculating investment returns when there are many transactions occurring at various times.

Multiple transactions may include monthly SIPs or more than one lump sum investment in or out of a single mutual fund scheme.

XIRR Example

As an investor, you will often see XIRR being used in mutual fund SIP returns.

Let’s say you invested a sum of money in the month of Jan (Rs. 2000).

Then, you skipped Feb and invested some more money in March (Rs. 5000).
After that, your next investment was in the month of Sept (Rs. 2000) and that was followed by the last investment of the year in Nov (Rs. 1000).
So your total investment is Rs. 10,000 at the end of the year.
Now, let’s say the investment grew in this period by Rs. 3000. So now, at the end of the year, it is valued at Rs. 13,000 total. What is your rate of return

So, you’ve made a total of Rs 3000 in addition to your initial investment of Rs 10,000.

Returns = 30%?

This would be incorrect.

The only time we can say that the returns for the year are 30% is if the entire Rs 10,000 had been invested together at the same time in Jan.

Each instalment has been invested at a different time so it is not experiencing the same duration for growth.

XIRR accounts for this and gives us a return by accounting for the different durations as well as redemptions in between.

What is XIRR?
What is XIRR?

Leave a Reply