What is XIRR?
The XIRR is a single rate of return that calculates the current value of an investment after considering all installments and redemptions. The XIRR represents your personal rate of return. It represents your real return on investment. XIRR stands for “Extended Internal Rate of Return.” It is a method for calculating returns on investments in which several transactions occur at various periods. Calculating returns in the case of SIP is complicated since there are several investments (and hence various purchase prices) and varied time periods for each payment. Returns on mutual fund SIPs are frequently calculated using the XIRR.
Geeky Takeaways:
- While CAGR is a crucial factor to consider when choosing a mutual fund, XIRR is more significant when assessing the returns on your investments.
- XIRR is a more accurate method of calculating return when a sequence of investments is made over time, including withdrawals, dividends, switches, and other transactions. When assessing mutual fund returns, XIRR performs far better than IRR and CAGR.
- Investors may make smarter judgments and negotiate the intricacies of the financial markets by using XIRR.
- The internal rate of return (IRR) is computed first, followed by a daily cash flow estimate and, at each period, an accounting for the time value of money.
Table of Content
- How does XIRR work?
- XIRR Formula
- Importance of XIRR in Mutual Funds
- Benefits of XIRR
- Limitations of XIRR
- Why Does XIRR in Mutual Funds Make Financial Sense?
- How To Calculate XIRR Using Excel?
- XIRR vs CAGR vs. IRR
- Extended Internal Rate of Return (XIRR) – FAQs