What is XIRR in Mutual Funds: Meaning, Example, Formula, How to Calculate XIRR

Extended Internal Rate of Return is short for XIRR. It is like a calculator that helps you figure out how much your money has grown, considering you’re investing or withdrawing at different times. It’s a simple way to measure your returns when cash flow is irregular.

What Is XIRR In Mutual Funds?

XIRR is a tool for calculating the true profit in terms of the percentage of your investment in mutual funds when you don’t invest all your money at once. People often invest in mutual funds through SIPs (Systematic Investment Plans), where they put in a small amount every month, or they might add lump sums and withdraw some money later. 

XIRR tells you the growth of your money over time, considering all these irregular inflows and outflows.

Example:

Let’s assume Akshay invests in a mutual fund

• January 1, 2023: She puts in ₹10,000 (this is her investment).
• July 1, 2023: She adds another ₹5,000.
• April 1, 2025: Her total investment is now worth ₹18,000, and she decides to check her returns.

Here, Akshay didn’t invest all her money at once (₹15,000 total), and the value grew to ₹18,000 over time. XIRR calculates her annual return percentage, considering the different dates. Using a tool like Excel, his XIRR might come out to be 9.13% per year. This means her money grew by 9.13% annually, on average, despite the staggered investments.

WHAT IS THE IMPORTANCE OF XIRR IN MUTUAL FUNDS?

XIRR is important because it gives you a real picture of your earnings. Mutual funds aren’t like a bank fixed deposit where you put money once and get a fixed interest rate. In mutual funds:

1. You invest at different times: Like Akshay’s example, you might invest monthly or whenever you have extra cash.
2. Market changes daily: The value of your fund goes up and down.
3. You might take money out: Sometimes you redeem (withdraw) some units.

A simple return calculation like Akshay invested ₹15,000 and got ₹18,000, so he made 20% doesn’t work here because it ignored when the money went in or out. XIRR considers the timing, making it accurate and fair.

For example, if Akshay had invested all ₹15,000 on Day 1 and it grew to ₹18,000, his return might look different. XIRR adjusts for her step-by-step investments, so she knows exactly how his money performs.

Does XIRR Make any Sense?

XIRR makes sense because life isn’t predictable. You don’t always have a big chunk of money to invest at once. Most people save and invest little by little ₹5,000 this month and ₹10,000 next year. 

The stock market also doesn’t grow in a straight line; it’s bumpy. XIRR smooths out these bumps and gives you one number to understand your growth.

Imagine you’re selling mangoes. Some days, you sell 10 mangoes for ₹100, and some days, you sell 5 for ₹50. XIRR is like figuring out your average profit per day, even though every day is different.

Formula of XIRR in Excel

Now, don’t worry this isn’t something you need to calculate by hand! XIRR is a bit like a magic recipe that computers solve. The formula looks scary, but here’s the simple idea:

XIRR finds a single rate (percentage) that makes the value of all your investments equal to the value of all your returns, considering the dates. Mathematically, it’s this

=XIRR(VALUES,DATES)

• XIRR: The rate we’re trying to find.
• Values: cash inflows and outflows of all investments from start to end.
• Dates: dates of all investments made on.

In plain terms: It balances your inflows (investments) and outflows (returns) over time. You just need a tool like Excel or a financial calculator to do it.

How to Calculate XIRR in Excel

Let’s make this super easy with Akshay’s example again. You can calculate XIRR using Microsoft Excel or Google Sheets. Here’s how:

1. List your cash flows and dates:
2. Open Excel:
3. Use the XIRR function:

Press Enter, and you get like 9.13%

That’s it! The Excel does the hard work. Also, shows XIRR automatically as of April 2025.

BENEFITS OF CALCULATING XIRR IN A MUTUAL FUND

Clear Picture: It tells you exactly how your money is growing, no guesswork.

Example:  Akshay knows her 9.13% is better than a 6% bank FD.

Compare Easily: You can compare different mutual funds or even other investments (like stocks or gold).

Example: If Akshay’s friend got 10% XIRR in another fund, he might switch.

Plan Better: Knowing your real return helps you decide if you’re on track for goals like buying a house.

Example:  Akshay wants ₹50,000 in 5 years; 9.13% XIRR tells him if he’s close.

Handles Complexity: Works even if you invest irregularly or withdraw money.

Example: If Akshay took out ₹2,000 in 2024, XIRR adjusts for that.

What is the difference between XIRR and CAGR?

Conclusion

XIRR is like a report card for your mutual fund investments. It’s simple yet powerful it cuts through the confusion of different investment dates and market ups and downs to tell you how much your money grew by this much every year. 

Whether you’re a beginner saving ₹1,000 a month or someone investing lakhs, XIRR helps you understand your profits in a way that’s fair and real. It’s easy to calculate with tools like Excel or apps, and it empowers you to make smart money choices.