Everything You Need to Know About XIRR in Mutual Funds

For investors, returns from mutual funds or other schemes have always been a basic benchmark. It showcases how much you gained or lost during a specific investment duration. XIRR, or Extended Internal Rate of Return, is a tool that helps you determine how much money you have grown from your investments, considering your investments or withdrawals at different times. It is an easy way to know your returns when there is irregular cash flow.

Want to know more about XIRR in mutual funds? Read the blog and get all the information about it, from its meaning to its calculation and more.

What Is XIRR in Mutual Funds?

XIRR stands for Extended Internal Rate of Return. XIRR in mutual funds or any investment is a tool that helps you calculate the true profit in terms of your investment percentage, where different transactions are happening at different times.

Further, through Systematic Investment Plans (SIPs), people often invest in mutual funds. Every month, they put a small amount of money or add lump sums and withdraw some money later. Here, XIRR helps you know the growth of your invested money over time, considering all these irregular outflows and inflows.

Confused? Let's better understand this with an example. Let's assume Mr. A invested in a mutual fund scheme.

• On January 1, 2023, he puts in INR 10,000 (it is his investment).
• On July 1, 2023, he added another INR 5,000 to that investment.
• Further, on April 1, 2025, his total investment is now worth INR 18,000, and he decided to know her returns.

Here, Mr. A does not invest his money all at once, and from INR 15,000, the investment value grew to INR 18,000. To calculate XIRR, use the XIRR function available in MS Excel and Google Sheets. The formula for it is "=XIRR(Values, Dates,[Guess])." Here, XIRR is the rate you need to find, values are the cash inflows and outflows for all investments, and dates denote the dates when all investments were made. After the calculation, the XIRR that came out is 9.13% per year. This means Mr. A's money grew 9.13% annually on average.

This was all about XIRR in mutual funds. Moving forward, let's look at how it works in mutual fund investments.

How XIRR Works in Mutual Fund Investments?

Here is how XIRR works in mutual fund investments:

• Considers Time and Value of Cash Flows: XIRR determines the timing and amount of each investment or redemption. Compared to CAGR, it reflects a more accurate reflection of returns.
• Manages Irregular Investments: Unlike standard return metrics, it calculates performance even when transactions are not spaced evenly. It is ideal for lump sum additions, SIPs, or partial redemptions.
• Annualised Return Representation: It converts all your capital gains into an annual percentage return. This further helps in comparing the mutual fund with other investments.
• Calculation Basis: XIRR identifies the discount rate that equalises the current value of all cash outflows and inflows to zero. This annual rate showcases your return over the investment period.

This is how XIRR works in mutual fund investments. It is specifically helpful where withdrawals and investments occur at several intervals. Moving further, let's know how to calculate XIRR.

XIRR Calculation

Using MS Excel and Google Sheets, you can simply calculate XIRR. This function is built into MS Excel to determine the XIRR. Here is how you can calculate it:

• Mention all your transactions in one column. It includes all outflows, such as purchases and investments, and inflows, such as redemptions.
• In the next column, enter the corresponding date of the transaction.
• After that, in the last column, state the present value of your holding amount and the current date.
• Now, use the XIRR function in Excel, i.e., =XIRR (Values, Date, [Guess]).
• Choose values for a series of cash flows that equal a schedule of payments on dates. Additionally, the date column shows the date of the first investment and the date of the first cash flow. Here, the guess parameter is optional.

Confused? Let’s better understand with an illustration. For instance, you invested in a six-month SIP.

• SIP Amount = INR 5,000
• SIP Investment Date = Start: January 1, 2018, End: June 1, 2018.
• Date of Redemption = July 1, 2018
• Maturity Amount = INR 31,000

Here, the table below showcases the cash flows:

The table above states the occurring cash flow at irregular intervals. Here to know you return for these cashflow, use the XIRR function. Additionally, when mentioning invested money, use the minus sign.

Further, open an Excel sheet and follow these steps:

• On the left side, in column A, mention the transaction date.
• In column B, mention your SIP amount as -5000 as it is an outflow.
• Now, against the redemption date (column A), mention the redemption amount (column B, INR 31,000)
• After that, in the box below 31,000, enter: “=XIRR(B1:B7, A1:A7)*100” and press the enter key.
• As a result, on your screen, the XIRR value will be displayed, i.e., 11.92% in the above scenario.

So, this is how XIRR is calculated. Moving ahead, let’s know how to use XIRR for SIP and multiple transactions.

XIRR for SIP and Multiple Transactions

Systematic Investment Plans (SIPs) are the most common investments that use XIRR. Since each installment of SIP is invested on a different date, and NAV, using CAGR to calculate returns, becomes inaccurate. In this scenario, XIRR resolves this issue by evaluating the installment independently.

The same thing applies to portfolios, including partial redemptions, lump-sum investments, switches between schemes, or dividend reinvestments. All these movements are consolidated by XIRR into a single, intelligible return figure.

Moreover, for NRIs, due to residency changes, regulatory requirements, or banking updates, SIPs may pause and resume. In such disruptions, XIRR remains unaffected and continues to showcase the true performance of the investment portfolio over time.

This was all about the role of XIRR for SIP and multiple transactions. Moving further, let’s know the importance of XIRR in mutual funds for NRIs.

XIRR in Mutual Funds for NRIs

For non-resident Indians (NRIs), XIRR in mutual funds is more than a performance indicator; it plays a key role in decision-making. For NRIs, investment in India often involves staggered inflows, tax implications tied to residency status, and different exchange rates. Here, without being impacted by these issues, the investment outcome is determined by the XIRR.

Additionally, NRIs investing through NRO accounts often face TDS on fund redemption, while subject to FEMA rules, NRE-based investments are tax-free. Although XIRR does not help in reducing taxes. However, it helps NRIs in knowing pre-tax performance across different strategies and funds.

Apart from this, when comparing investments made through a residential property and after becoming an NRI, XIRR plays a vital role. It offers a benchmark to assess whether you should continue your investment or reallocate it to another investment.

So, this is how XIRR in mutual funds helps in making financial decisions and determining investment value. Now, moving ahead, let’s know the key difference between XIRR and CAGR.

XIRR vs CAGR: Which Is Better for NRIs?

The table below showcases the key differences between XIRR and CAGR and which option is better for NRIs.

These were the differences between XIRR and CAGR. It completely depends on NRIs which formula they use to calculate their returns, as each of them have their own perks and drawbacks. With this, moving further, let’s know how NRIs should interpret XIRR results.

How NRIs Should Interpret XIRR Results?

Understanding how NRIs can interpret XIRR returns helps them in taking the right investment decisions that align with their financial goals and risk appetite. Further, to help you out, here are some key tips that you can use:

• Positive XIRR: It states that your investment has generated capital gains. Usually, a higher XIRR denotes stronger investment performance.
• Value of Consistency: If across different time frames, your XIRR remains positive steadily, it showcases the resilience of the funds. Additionally, also indicates the capability of long-term growth.
• Negative XIRR: It indicates a loss. It is vital to find out the cause of it and, if needed, reconsider your investment strategies.
• Benchmarking Returns: Always compare your XIRR of your funds with the relevant market benchmarks or peer funds. It assists you in evaluating the effectiveness of relative funds.

So, this is how using the above-mentioned tips, NRIs can interpret XIRR results.

Final Thoughts

Lastly, XIRR in mutual funds is the best option to understand your returns and make informed decisions. Considering this, whether you are investing via SIPs, intermittently withdrawing funds, or making a lump-sum contribution, XIRR captures the complete picture of the performance of your investment.

Furthermore, if you need more guidance on NRI investment, connect with Savetaxs. The financial experts in our team will resolve all your doubts and assist you in choosing the right investment as per your financial goals.