Market Crashed Today? What Your SIP's XIRR and CAGR Actually Tell You — SIP Returns Explained Simply

Quick Answer

Your SIP calculator shows XIRR — the annualised return on money invested in monthly instalments. CAGR measures a single lump sum and misreads SIPs: applied naively it shows 6.57% where the true XIRR is 12.67%. In a crash, your portfolio value falls but each instalment buys more units at lower NAVs — that is rupee-cost averaging arithmetic. The Sensex fell 1,045 points on October 8, 2026 and the Nifty touched an intraday 52-week low of 22,179.90. If you opened your fund app today, the red looked alarming — but XIRR on your statement and CAGR on a factsheet measure different things. Confusing them is a common, costly mistake. This guide decodes both, with a worked example you can verify yourself.

1. What your SIP calculator actually shows: XIRR

XIRR — Extended Internal Rate of Return — is the standard measure for any investment where money goes in instalments at different dates. Which is exactly what a SIP is. You invest ₹10,000 in January, ₹10,000 in February, ₹10,000 in March, and so on. Each instalment has been in the market for a different length of time: the January instalment has compounded for years, while last month's has barely started. XIRR finds the single annualised rate that makes all those cash flows, at their actual dates, equal to your final corpus. It respects the timing of every rupee. Two consequences: when a calculator projects a corpus at an "expected return" of 12%, it is solving for an XIRR of 12%. And because XIRR is annualised, you can compare it directly with an FD rate, your home loan rate, or another fund's XIRR. One subtlety: we assume exactly 12% p.a. (1% a month) below, yet the computed XIRR is 12.67% — not an error, just XIRR annualising on exact day counts while the 1%-a-month shortcut compounds neatly within months.

2. What CAGR is — and why it misreads a SIP

CAGR — Compounded Annual Growth Rate — answers a different question: "If I had invested one lump sum on day one and touched nothing, what steady annual rate would have grown it to the final value?" It uses only three inputs: start value, end value, years. The formula is (end ÷ start)^(1 ÷ years) − 1. CAGR is the correct measure for a lump-sum investment, a stock bought once and held, or a fund's published 5-year return. A factsheet's "5-year CAGR of 14%" means one rupee invested five years ago, left untouched, grew at 14% a year. The mistake is applying that lump-sum lens to a SIP. Run your ₹6 lakh invested and ₹8.25 lakh corpus through the CAGR formula and you pretend the entire ₹6 lakh went in on day one. It did not — the last instalment went in a month before the end, the middle ones averaged two and a half years. Treating staggered money as day-one money massively understates the effective rate: 6.57% where the true XIRR is 12.67%. Wrong question, wrong answer.

3. The worked example: ₹10,000 a month at an assumed 12%

Built from scratch, step by step. Illustrative assumptions, not forecasts — real returns are never a smooth 12%. - Instalment: ₹10,000 at the start of each month - Duration: 5 years (60 instalments) - Assumed return: 12% per annum (1% per month), applied uniformly - Total invested: 60 × ₹10,000 = ₹6,00,000 Step 1 — project the corpus. Each instalment compounds at 1% a month for the months remaining after it is invested: the first for 60 months, the last for 1 month. Summing all 60 gives a projected corpus of ₹8,24,864, for a total gain of ₹2,24,864. Step 2 — the wrong measure. Naive CAGR: (₹8,24,864 ÷ ₹6,00,000)^(1÷5) − 1 = 6.57%. Believe this number and you would conclude a 12%-assumed SIP somehow earned 6.57% — and might wrongly judge the fund, or SIPs in general, as poor performers. Step 3 — the right measure. The XIRR of the actual cash flows (₹10,000 out on 60 dates, ₹8,24,864 back at the end) is 12.67%, matching the 12% assumption (the 0.67-point difference is the day-count convention from section 1). Memorise this: for money invested in instalments, read the XIRR. For a single investment held over time, read the CAGR.

4. What a crash does to SIP maths — today's example

When your fund's NAV falls, two things happen at once — and only one is visible on your app's home screen. The visible part: your portfolio value drops. That is a real, current valuation — a snapshot of today's price, not a permanent outcome. The invisible part: your next ₹10,000 buys more units. At a NAV of ₹100, ₹10,000 buys 100 units. At ₹75 after a 25% fall, the same ₹10,000 buys about 133 units — roughly a third more units for the same money. This is the mechanical heart of rupee-cost averaging: fixed instalments automatically buy more when prices are low and fewer when prices are high, so the average purchase cost ends up below the average market price over time. Extend the worked example: same ₹10,000-a-month, 5-year SIP at an assumed 12%, but insert a one-time 25% NAV fall in month 24, with growth resuming at the assumed rate afterwards: - Total invested: still ₹6,00,000 - Corpus at the end: ₹7,27,417 (instead of ₹8,24,864) - Total gain: ₹1,27,417 (instead of ₹2,24,864) - XIRR of the cash flows: 7.63% (instead of 12.67%) Read the numbers honestly: the crash reduced the outcome — 7.63% is genuinely lower than 12.67% — but the money still compounded, and post-crash instalments bought at the lower NAV did more work per rupee. A naive CAGR would show roughly 3.9%, again understating the effective rate by pretending all ₹6 lakh faced the crash from day one. None of this recommends starting, stopping, or continuing any investment — it is the arithmetic your calculator performs either way, letting you read a red day as a valuation snapshot, not a verdict.

5. Taxes and exit loads change what you keep

Calculator projections are pre-tax, pre-cost. What reaches your account is smaller, under rules fixed by law (verified against current provisions): - Each instalment has its own holding clock. Units bought 13 months ago are long-term; units bought 3 months ago are short-term — within the same SIP. - LTCG: units held more than 12 months are taxed at 12.5% on gains above ₹1.25 lakh per financial year (Section 112A). The first ₹1.25 lakh of long-term gains each year is exempt. - STCG: units held 12 months or less are taxed at a flat 20% (Section 111A), with no exemption threshold. - Cess: 4% health and education cess applies on the computed tax. - Exit loads: many equity funds charge around 1% on redemptions within a year — check your scheme document; the load applies per instalment's age, not the SIP's age. - FIFO: redemptions use first-in-first-out, so your oldest (usually long-term) units go first. Why it matters: redeem ₹5 lakh of gains after 14 months with no other equity gains that year, and roughly ₹3.75 lakh is taxable at 12.5% (about ₹46,875 plus cess). Redeem after 10 months and the full ₹5 lakh is taxed at 20% (₹1,00,000 plus cess). Same profit, very different take-home — which is why calculators that ignore tax flatter every projection.

6. Four illusions your SIP calculator can create

- Past returns typed in as future returns. A calculator projecting 15% because the fund earned 15% over five years is illustrating a scenario, not forecasting one. Past performance does not predict future results. - The smooth-line assumption. Real equity returns arrive in lurches — days like today sit inside the same long-term average as the strong years. A calculator's straight 12% line never shows a red day; your statement will. - Gross, not net. Taxes, exit loads, and the expense ratio all come out of the projected figure. A "₹1 crore in 15 years" projection is pre-tax and pre-cost. - Invisible inflation. ₹1 crore in 15 years will not buy what ₹1 crore buys today. For long goals, mentally discount projections by expected inflation before deciding what a number really means. Calculators compare scenarios; they do not forecast. Run three versions — conservative, moderate, optimistic — and plan around the conservative 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.