What is an XIRR Calculator?
Over the past few years, investing in mutual funds through a Systematic Investment Plan (SIP) has gained significant traction. While investing is easy, calculating the exact returns on an SIP can be challenging, especially when investments are irregular or withdrawals occur. The Extended Internal Rate of Return (XIRR) is the single rate of return that, when applied to every single transaction (inflow or outflow), equates the present value to the current maturity amount. Unlike CAGR, which only looks at start and end points, XIRR considers the specific timing of every cash flow.
How to use Finzony’s XIRR Calculator?
Our calculator automates the complex mathematical iterations required for XIRR. Just follow these steps:
- Select Frequency: Choose how often you invested (Monthly, Quarterly, etc.).
- Enter Start Date: The date of your very first investment.
- Enter Maturity Date: Today's date or the date of redemption.
- Input Amounts: Enter the recurring installment amount and the final maturity value.
- Get Result: The calculator instantly computes the annualized percentage return.
Steps to Calculate XIRR in Excel
If you prefer doing this manually in spreadsheets, here is how:
- Column A (Dates): Enter the dates of all transactions.
- Column B (Amounts): Enter investment amounts as negative numbers (outflows) and the redemption amount as a positive number (inflow).
- Formula: In a new cell, type =XIRR(values_range, dates_range).
- Result: Excel will perform the iteration and give you the percentage return.
Difference between CAGR and XIRR
CAGR (Compounded Annual Growth Rate) is suitable for lump sum investments where there is only one entry and one exit. However, for SIPs where multiple investments happen at different times, CAGR fails to account for the varying time periods of each installment. XIRR solves this by treating each installment as a separate investment and aggregating the return.
Benefits of XIRR Calculator
- Accuracy: Handles multiple transactions at different dates perfectly.
- Annualized View: Converts complex cash flows into a simple annual percentage.
- Performance Tracking: Helps compare SIP returns against benchmarks effectively.
- Convenience: Saves you from creating complex Excel sheets manually.
Frequently Asked Questions
Why is my XIRR negative?
If the current value of your investment is less than the total amount invested, your XIRR will be negative, indicating a loss.
Is XIRR better than CAGR for SIP?
Yes, absolutely. CAGR assumes the entire money was invested for the whole duration, which is false for SIPs. XIRR accounts for the fact that your recent SIPs haven't had much time to grow yet.
Can I calculate XIRR for withdrawals (SWP)?
Yes, XIRR works for any series of cash flows. For SWP, you would treat the initial corpus as a negative starting value and monthly withdrawals as positive cash inflows.