XIRR vs CAGR: Which Number Actually Tells You What Your SIP Earned

Your mutual fund app says one number. The fund's factsheet says another. Your friend claims a third. Which one did your SIP actually earn — and why do they disagree? Here's the uncomfortable truth: most investors have never looked at the right number. There are three return figures floating around — absolute return, CAGR, and XIRR — and for a SIP, only one of them means what you think it means. XIRR (extended internal rate of return) is the number your SIP actually earned — it accounts for every instalment going in on different dates. CAGR assumes one lump-sum investment, which misrepresents staggered SIP cash flows. A ₹10,000/month SIP that grew to ₹4.5 lakh in 3 years has a CAGR-style figure of ~7.72% but an XIRR of ~15%. XIRR is the honest one.

The example that breaks everyone's brain

Take a simple case, widely used by Indian finance writers through 2026: you invest ₹10,000 every month for 3 years. Total invested: ₹3.6 lakh. Final value: ₹4.5 lakh. Absolute return: (4.5 − 3.6) ÷ 3.6 = 25%. Correct arithmetic, zero insight — it says nothing about time. CAGR-style calculation: (4.5 ÷ 3.6) to the power 1/3 minus 1 = about 7.72% per year. This treats the whole ₹3.6 lakh as if it were invested on day one. XIRR: about 15% per year. This accounts for the fact that your January instalment had 3 years to grow, while your last instalment had one month. Same money. Same dates. Three numbers. The 15% XIRR is the number that actually describes your experience — because it respects when your money entered the market. The 7.72% punishes your SIP for not having existed at day one. It's maths, but it's the wrong maths for a SIP.

What CAGR actually is — and when it's right

CAGR (compound annual growth rate) answers one question: if a single lump sum grew at a steady rate every year, what would that rate be? It assumes one investment, one redemption, smooth compounding. For that narrow job — comparing a lump-sum investment's growth, or a fund's point-to-point factsheet performance — CAGR is exactly right.

That is precisely why it's wrong for SIPs. A SIP is not one investment. It is 36 separate investments (in a 3-year monthly SIP) each with its own time in the market. Applying lump-sum maths to staggered cash flows systematically understates your return, because the later instalments get "charged" for years they were never invested.

What XIRR actually does

XIRR — extended internal rate of return — solves for the single annualised rate that makes the present value of all your cash flows equal zero. In plain English: it asks "at what annual rate would each rupee have had to compound, given the exact dates it entered, to reach today's value?" The "extended" part means it handles irregular amounts and irregular dates — which is exactly what real SIPs look like, once you account for a paused month, a stepped-up instalment, or a partial withdrawal. Every one of your instalments gets weighted by its actual time in the market. That is why all four major Indian platforms — Groww, Zerodha Coin, Kuvera, and ET Money — show portfolio returns per folio as XIRR, not CAGR. Your app was right all along.

How to calculate XIRR yourself in Excel or Google Sheets (copy-paste method)

You don't need your app's permission. The spreadsheet function does exactly what the apps do: 1) In column A, list every cash-flow date (investment dates first, ending with the valuation date). 2) In column B, list the amounts: investments as negative numbers, the final portfolio value as a positive number. 3) Type =XIRR(B2:B38, A2:A38) (adjust the range). Press Enter. Three rules that break the formula: you must have at least one positive and one negative number; dates must be real dates, not text; and the final row must be the current value on today's date — not a projected value. If Excel throws a number error, one of those three is wrong, almost always the dates-as-text problem. Try it with the example above: 36 rows of minus ₹10,000 monthly, one row of plus ₹4,50,000 on the last date. You'll land near 15% — the same number the finance columnists keep arriving at, because the maths is the maths.

The three traps that make smart investors misread these numbers

Trap 1: Comparing your SIP's XIRR to the fund's published CAGR. Factsheets show point-to-point CAGR — one lump sum, start to end. Your SIP's XIRR uses 36 different start dates. Comparing them is apples to oranges, and your SIP will usually look worse than the "fund return" for no fault of its own. The valid comparison: compute the benchmark index's XIRR using the same cash-flow schedule as your SIP, then compare. Most comparisons you see online skip this step. Trap 2: Panicking over a negative XIRR in a down market. The Nifty fell roughly 5.7% in September 2026 alone — the market's worst September in eight years — while FIIs pulled about $27.8 billion out of Indian equities in 2026. In that environment, almost every equity SIP started recently shows a low or negative XIRR. That is the number telling the truth about today's market value, not a verdict on the fund. Falling markets are when SIPs buy more units per instalment; the recovery, when it comes, compounds on a larger unit base. A single XIRR snapshot during a correction says almost nothing about a 7–10 year equity holding. Trap 3: Chasing the highest XIRR across funds. XIRR measures one scheme over one specific period. A fund with a sparkling 3-year XIRR may have achieved it by concentrating in whatever worked in that window — and concentration cuts both ways. Compare like with like: same category, same period, same cash-flow assumption. And remember that a higher XIRR is not a prediction; it is a measurement of the past.

A stay-or-switch framework for a disappointing XIRR

So your SIP's XIRR looks bad. Before doing anything, run this decision framework — it is the part most online guides leave out: 1) Is the XIRR below the benchmark XIRR for the same dates? If the fund beats its benchmark on matched dates, the market is the problem, not the fund. Keep calm. 2) Is the underperformance recent or persistent? One bad year in a 5-year SIP is noise. Rolling underperformance across 3+ years deserves a closer look at the fund, not a panic exit. 3) Has your time horizon changed? Equity SIPs are built for 7–10+ year goals. If your goal is now 18 months away, the correct move was never "switch funds" — it was moving toward debt much earlier. Talk to a SEBI-registered investment adviser about the asset shift. 4) Are you comparing a regular-plan XIRR to a direct-plan benchmark? Regular plans carry distributor commissions that drag XIRR by roughly 1–1.5% a year versus direct plans of the same scheme. Know which plan your XIRR belongs to before judging it. What the framework never recommends: stopping your SIP because the XIRR went negative in a correction. History's most rewarded SIP vintages started in exactly these conditions — but history is not a promise, and a financial adviser, not a blog post, should validate your specific situation.

The 60-second version

Absolute return ignores time — useless for comparisons. CAGR assumes one lump sum — fine for factsheets, misleading for SIPs. XIRR respects every instalment's actual date — the only number that describes your SIP's real return. All major Indian apps already show XIRR per folio. Your factsheet's CAGR and your app's XIRR will differ — that is expected, not an error. Never compare SIP XIRR to factsheet CAGR; never redeem on one negative-XIRR snapshot. The numbers on your screen were never lying to you. Most investors were just reading the wrong one. This article is for educational purposes only and is not financial advice. Please consult a SEBI-registered investment adviser for personalized guidance. Investments are subject to market risk.