XIRR vs CAGR
Both are annualised return metrics. Both look similar at a glance. But pick the wrong one and you'll badly mis-judge your portfolio. Here's exactly when to use each — and what Excel actually does.
The one-line answer
Use CAGR for a single lump-sum investment with a single redemption. Use XIRR for everything else — SIPs, top-ups, withdrawals, dividends, rebalancing.
Side-by-side comparison
| Aspect | CAGR | XIRR |
|---|---|---|
| Number of cash flows | Exactly 2 (in, out) | Any number |
| Irregular dates | Not supported | Day-level accuracy |
| SIP returns | Wrong | Correct |
| Withdrawals / top-ups | Not supported | Supported |
| Excel function | Manual: (FV/PV)^(1/n) - 1 | =XIRR(values, dates) |
| Used by fund houses? | Rarely | Always |
Worked example: a 3-year SIP
You invest $500/month for 36 months. Final value: $21,500. Total invested: $18,000.
- Naive CAGR (treating it as a lump sum): 6.1% — misleading.
- True XIRR (honouring each contribution date): ~11.8%.
The XIRR is roughly double because your average dollar was invested for ~18 months, not 36.
Internal links
- How to calculate XIRR step-by-step
- The XIRR formula explained
- XIRR Calculator
- Investment return calculator
XIRR vs CAGR — FAQs
Everything investors usually ask about XIRR, SIPs and return calculations.
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