CAGR vs XIRR: which return number to use, worked on a real SIP

Three return numbers, three questions

Most confusion about returns comes from comparing numbers that answer different questions.

• Absolute return: how much did the money grow, in total? (End value minus what you put in) divided by what you put in. It ignores time.
• CAGR, compound annual growth rate: if the money had grown at one steady rate every year, what rate joins the start value to the end value? It needs one start and one end.
• XIRR, extended internal rate of return: if each rupee you put in had grown at one steady yearly rate from the day it went in, what rate gives today's value? It handles any number of dates.

When there is only one deposit and no withdrawal, CAGR and XIRR give the same answer. They part ways the moment a second cash flow appears.

CAGR, worked

The formula is short: CAGR = (end value ÷ start value) ^ (1 ÷ years) − 1.

Say ₹1,00,000 grew to ₹2,50,000 in five years. 2.5 to the power of one fifth is about 1.2011, so the CAGR is 20.11% a year. The money did not grow 20.11% in each year; one year it might have grown 45% and another fallen 10%. CAGR is the steady rate that would have got you to the same place. The blog note average return vs CAGR shows why the simple average of yearly returns overstates it.

Why a SIP breaks CAGR

A SIP puts money in every month. The first instalment is invested for the whole period; the last one for a month. If you divide the final value by the total you put in and run the CAGR formula over the whole period, you treat every rupee as if it had been invested from day one. The answer comes out far too low.

XIRR fixes this. It finds the one yearly rate at which every instalment, grown from its own date, adds up to today's value. Spreadsheet software has it built in: list the dates and amounts, with money in as negative and today's value as positive, and use the XIRR function. The XIRR calculator does the same on this site.

A real SIP, worked three ways

Here is a ₹10,000 monthly SIP in the RupeeCase Nifty 50 Equal Weight model, 57 instalments at month end from Jul 2021 to Mar 2026, valued at the end of Apr 2026, using the published model nav file.

Three lessons from one table. The 44.3% absolute return is not a yearly figure and should never be compared with a fund's yearly return. The XIRR of 15.45% is the honest yearly rate of the SIP. And it is lower than the 17.05% lump sum CAGR over the same window, because the SIP's later instalments missed part of the rise; in a falling market the order would flip. The blog note SIP returns: XIRR vs the absolute number shows the same effect on another card.

When money comes and goes unevenly

The gap is widest with lumpy cash flows. Suppose you put in ₹1,00,000, added ₹4,00,000 three years later, and two years after that the account is worth ₹6,00,000.

• Absolute return: ₹1,00,000 gain on ₹5,00,000 put in, 20%.
• A naive CAGR over five years on ₹5,00,000: about 3.7% a year. Wrong, because most of the money was invested for only two years.
• XIRR on the three dated amounts: about 7.1% a year.

Which number each document shows

• A mutual fund factsheet shows CAGR of the NAV over one, three and five years. That is the fund's return, not yours.
• Your consolidated account statement or broker report should show XIRR on your own dates. That is your return.
• A PMS reports time weighted returns (TWRR), which remove the effect of clients' cash flows to measure the manager. The PMS guide explains why.
• A strategy page or back test usually shows the CAGR of a single model investment. If you then add money every month, your own XIRR will differ.

Common mistakes

1. Comparing an absolute return with a yearly one. Always convert to a yearly figure first.
2. Using CAGR on a SIP. It understates the return, often by a lot.
3. Picking the window. Both CAGR and XIRR depend on the start and end dates. A return measured from a market low looks heroic. Look at several windows.
4. Forgetting what is inside. Tax, exit loads and fees paid outside the NAV are not in the fund's CAGR. Your XIRR, worked on what actually reached your bank account, includes them.

Rolling returns: a fairer view than one window

Every CAGR and every XIRR depends on two dates. Move the start by a few months and the number can change a lot, especially around a peak or a low. A fairer view is rolling returns: compute the CAGR for every possible three or five year window in the record, then look at the range, the median and the worst.

A fund or strategy whose worst three year window was still positive tells you something no single CAGR can. One whose median is high but whose worst window lost money tells you what the bad luck case looks like. Some fund factsheets and research sites show rolling returns; many do not, and you can compute them yourself from a monthly NAV history.

The same applies to your own SIP. An XIRR worked today will differ from one worked six months ago, even if you did nothing, because the end value moved. Judge a long term SIP over years, not over the last quarter, and compare it with a simple alternative over the same dates: the index fund you could have bought instead.

TWRR and XIRR in one line each

• TWRR, time weighted: how the portfolio did, ignoring when money came in or went out. Use it to judge a manager.
• XIRR, money weighted: how your rupees did, given when you added and withdrew them. Use it to judge your own account.

How this shows up in RupeeCase

Each RupeeCase strategy page shows the model CAGR of a single investment from the start of the back test, the deepest fall and the Sharpe ratio, all labelled with their date, because a single start and end is the fair way to compare rules. Your own account, once you add money on different dates, is an XIRR question. Midcap, a momentum rule on the Nifty Midcap 150 with 20 stocks rebalanced every 2 weeks, shows a model CAGR of 38.75% with a deepest fall of −24.87% as of 27 Apr 2026. The same ₹10,000 monthly SIP in its model, worked as above from May 2021 to Mar 2026, had an XIRR of 37.62%, below its lump sum CAGR of 41.18% for that window. The CAGR calculator and the XIRR calculator do either on your own numbers.

Questions investors ask