If you invest through a SIP, the single most useful number to judge how it has done is XIRR — not the "absolute return" your statement shows, and not a simple CAGR. Here is what XIRR means, why it exists, and how to find yours in a minute.
The problem with "absolute return" on a SIP
Suppose you invested ₹10,000 every month for a year — ₹1,20,000 in total — and today it is worth ₹1,30,000. Your statement proudly shows a gain of ₹10,000, an absolute return of about 8.3%.
But that 8.3% is misleading, and here's why: your first instalment was invested for a full year, while your last instalment was invested for barely a month. Most of your money was in the market for only part of the year — yet the absolute figure treats every rupee as if it had the same time to grow. It quietly understates how hard your money actually worked.
What XIRR actually measures
XIRR — Extended Internal Rate of Return — is the annualised, money-weighted return. In plain words: it works out the single yearly growth rate that, applied to each instalment for the exact number of days it stayed invested, would turn all your investments into today's value.
Because it accounts for when each rupee went in, XIRR is the only fair way to compare a SIP against a fixed deposit, a benchmark, or another fund. It is exactly the number CAMS/KFintech statements and fund fact-sheets quote, and it is what a spreadsheet's XIRR() function computes.
A worked example
Take the same SIP: ₹10,000 a month for 12 months, now worth ₹1,30,000.
- Absolute return: 8.3% (₹10,000 gain on ₹1,20,000 invested).
- XIRR: about 15.7% per annum.
The XIRR is much higher than the absolute figure — because on average your money was invested for only about half the year, so an 8.3% total gain over that shorter effective period annualises to roughly 15.7%. Neither number is "wrong"; they answer different questions. For judging performance and comparing options, XIRR is the one that matters.
XIRR vs CAGR vs absolute return
| Measure | Best for | Handles multiple dated instalments? |
|---|---|---|
| Absolute return | A quick "how much did I gain" snapshot | No — ignores timing |
| CAGR | A single lump-sum held over a period | No — assumes one investment, one date |
| XIRR | SIPs, top-ups, redemptions — any dated cash flows | Yes — this is what it's built for |
Rule of thumb: for a one-time lump sum, CAGR and XIRR agree. The moment you invest on multiple dates — as every SIP does — use XIRR.
Find your SIP's real XIRR — free
Enter your instalments and current value, or upload your CAS, and see the true annualised return in seconds.
How to read your XIRR once you have it
A higher XIRR is generally better, but always read it alongside risk and time period. A fund with a dazzling one-year XIRR during a bull run tells you little about how it behaves in a fall. Look at XIRR over longer, complete market cycles, and compare a fund only against its own category and a relevant benchmark — never a small-cap against a large-cap on XIRR alone.