CAGR vs XIRR: Meaning, Formula and Examples

CAGR formula

CAGR = (Ending value ÷ Beginning value)^(1 ÷ years) − 1. It smooths the path and ignores interim volatility.

Why SIPs need XIRR

Every SIP instalment has a different holding period. XIRR finds the discount rate that makes dated inflows and outflows balance. Spreadsheet XIRR uses negative signs for investments and a positive sign for the current or redemption value.

Illustration

₹1,00,000 becoming ₹1,21,000 in two years has a 10% CAGR. For twelve monthly investments, CAGR is inappropriate; use actual transaction dates in XIRR.

Interpret carefully

XIRR is money-weighted and affected by the timing of your contributions. It should not be used alone to judge a fund manager against a time-weighted benchmark.

Common errors

Wrong signs, missing cash flows, approximate dates and comparing pre-tax with post-tax numbers can materially distort the result.

Action checklist

1. Write down the goal, amount and deadline.
2. Check liquidity, risk, costs, tax and exit restrictions.
3. Use only regulated intermediaries and original documents.
4. Record assumptions and review after major life or rule changes.

Sources and methodology

We prioritised official Indian regulator, tax authority and industry-body material. Numerical examples are illustrations, not forecasts. Product rates, limits and taxation should be rechecked on the transaction date.

• AMFI — Systematic Investment Plan (accessed 2026-09-26)