Explainer
XIRR vs CAGR — what they mean and when to use each
Updated: October 2026 · Baasava Hathiwala
Both CAGR and XIRR tell you an annualised return, but they answer slightly different questions. Pick the wrong one and your returns can look much better — or worse — than they really are. Here is the simple version.
CAGR — for a one-time investment
CAGR (Compound Annual Growth Rate) is the steady annual rate that takes a single investment from its starting value to its ending value. It assumes one investment, made once.
CAGR = (Ending ÷ Beginning)^(1 ÷ years) − 1
Example: ₹1,00,000 grows to ₹2,00,000 in 5 years → (2 ÷ 1)^(1/5) − 1 ≈ 14.87% per year.
XIRR — for SIPs and irregular cash flows
XIRR (Extended Internal Rate of Return) is the annualised return when money goes in and out on multiple dates and in different amounts — exactly what a SIP is. Each instalment is invested for a different length of time, so XIRR weights every cash flow by its date and size. It is the number your statement and most platforms show for a SIP.
Why a SIP needs XIRR, not CAGR
In a SIP, your January money compounds for 12 months but your December money for only one. A single CAGR can't capture that — it would treat the whole amount as if invested on one day. XIRR solves for the one rate that makes all those dated cash flows reconcile with your final value, giving the true return.
Which to use
| Situation | Use |
|---|---|
| Lumpsum invested once | CAGR |
| SIP / recurring investment | XIRR |
| Multiple top-ups and withdrawals | XIRR |
| Comparing two lumpsum investments over the same period | CAGR |
How to judge the number
Whether an XIRR or CAGR is "good" only makes sense against a benchmark and peers over the same period. A high number in a bull market isn't skill, and past returns don't predict the future. See how patience and compounding actually drive outcomes in our Make Money or Build Wealth tool.
Calculate yours
- SIP calculator — project SIP growth.
- Compare mutual funds — line up returns side by side.
- SIP vs lumpsum — which approach fits you.
Frequently asked questions
What is the difference between XIRR and CAGR?
CAGR (Compound Annual Growth Rate) measures the annualised return of a single investment made once, from start value to end value. XIRR (Extended Internal Rate of Return) measures the annualised return when money goes in (and out) at multiple dates and amounts — like a SIP. Use CAGR for a lumpsum; use XIRR for SIPs or any irregular cash flows.
Which should I use for my SIP returns?
XIRR. Because a SIP invests on many different dates, each instalment is invested for a different length of time, so a simple CAGR would be misleading. XIRR accounts for the timing and size of every cash flow and gives you the true annualised return.
What is a good XIRR for a mutual fund?
There is no fixed "good" number — it depends on the fund category, market period and risk taken. The right way to judge an XIRR is against the fund's benchmark and category peers over the same period, not against an arbitrary target. Past returns also do not predict future ones.
How is CAGR calculated?
CAGR = (Ending value ÷ Beginning value)^(1 ÷ number of years) − 1. For example, ₹1 lakh growing to ₹2 lakh over 5 years is (2/1)^(1/5) − 1 ≈ 14.87% CAGR.
For education only — not investment advice. Mutual fund investments are subject to market risks; past performance does not guarantee future results. See our disclaimer.