Are you a mutual funds investor? If you do, you must have heard of the XIRR calculator. First off, what is XIRR and why is it significant? When you invest a certain amount in mutual funds and are promised a percentage of the returns after a certain period, like 5 or 10 years, we want to calculate and understand the profit we gain from the scheme. This article is all about what **XIRR means in mutual funds**, followed by some of the popular topics like CAGR meaning in share market, what is a good XIRR, what is a good CAGR, a comparison of XIRR vs CAGR and much more.

**What XIRR Means in Mutual Funds?**

There are several investments and multiple purchase prices to deal with, along with different timeframes for each payment in a SIP, calculating returns is a little trickier. That’s where XIRR comes into the picture. Returns on mutual fund SIPs are often stated in terms of XIRR. Let us learn more about it.

**What Is XIRR?**

XIRR, meaning in mutual funds, is an **Extended Internal Rate of Return**. Any investment’s main goal is to generate returns. Returns might take the shape of income, capital growth, or perhaps both. Compound Annual Growth Rate (CAGR) and XIRR are the two most commonly used metrics for mutual fund returns. **When many transactions are occurring at various points in time, the XIRR formula is used to determine investment returns**.

**IRR, or Internal Rate of Return, is a statistic used to assess the profitability of a string of cash flows**. All cash flows, both inflows and outflows, as well as the dates on which they occur are considered by RR. The IRR equation is fairly complicated since manually calculating IRR requires a lot of trial and error. However, using the built-in IRR method in the Microsoft Excel sheet, one may quickly compute the IRR of cash flows.

It is the assumption that the interval between consecutive cash flows is the same that makes the IRR formula in Excel a bad option. It is a serious impediment since cash flows seldom happen at the same time throughout the investment’s lifespan. This is why we use the XIRR function to calculate the returns.

Simply said, **XIRR is IRR modified to provide for the flexibility of assigning precise dates to individual cash flows, making it a considerably more accurate method of calculating returns**. You only need to input the transactions and the relevant dates to find out the XIRR for mutual funds.

**XIRR Calculator: How to Use It to Calculate Returns?**

After learning about what XIRR means in mutual funds, let us go over the basics of XIRR Calculator. A calculated annualized return on investment determines how much funds you’ll earn on investment annually.

The following is one formula for calculating the yearly return on investment:

Total Return = Final Amount – Initial Amount

Total Return % = 100*(Total Return/ Initial amount)

Therefore, **XIRR% = [(1+ TR/100) ^{(1/t)}-1] x 100**

Where **t** is the length of time and **TR** is the total return.

This becomes a very complex calculation, and therefore, you can use this Fintra XIRR calculator. You just need to mention the following:

- Amount invested
- Maturity Amount
- Total Time of the investment

It is important to remember that the calculation won’t reveal how the investment might fluctuate in price or perform during market swings and periods of volatility.

**Also Read:** What Is Canada RIT Deposit?

**How to Calculate XIRR in Excel?**

Start by entering the first investment amount in an Excel document. A ‘minus’ symbol should be used to indicate the amount invested. Enter the returns received for each period in the cells below. Whenever you invest money, don’t forget to use the ‘minus’ symbol.

Excel Function for XIRR: **=XIRR (values, dates, guess)**

Below is a step-by-step guide to calculating XIRR in an Excel sheet:

1. On the left side of column A, enter the **dates of the transaction**.

2. In column B, enter the **SIP figure as a negative figure** as it’s an outflow cash flow.

3. Fill out Column B with the **redemption amount** next to Column A for the **redemption date**.

4. In a cell below the total amount, type in: **= XIRR (B1: B7, A1: A7)*100** and press enter.

Here, the values refer to a set of cash flows that line up with a payment schedule expressed in dates. The initial payment must be a negative amount and correspond to the investment made at the start of the investment term. Every subsequent payment is discounted using a 365-day year. There must be two values in a sequence: one positive and one negative.

The initial investment and the day on which the profits were received refer to the same day. According to the preceding table, each date should line up with the corresponding investment made or money received.

Dates should be supplied using the format ‘DD-MM-YY’ (date-month-year), since failure to do so may result in problems. The ‘#VALUE!’ error will be displayed by XIRR if any of the dates include incorrect numbers or if the format of the dates is incompatible.

**What Is a Good XIRR?**

You now know what XIRR means in mutual funds. Now let’s look at the answer to what is a good XIRR? Although it can be challenging to define what constitutes a good XIRR, **an XIRR of 12% on an equity mutual fund for a 10-year investment horizon is typically considered to be acceptable**. Similarly, XIRR above 8% should be decent enough for debt mutual funds. The same goes for debt mutual funds; XIRRs over 8% ought to be respectable.

There are, however, a variety of factors that affect the rate of return, such as duration, risk factors, and market inflation.

**What Is CAGR Meaning in Share Market?**

A stock market investor’s returns for the past three years, five years, and so forth are what we look for when deciding where to invest. The compound annual growth rate, or CAGR, is the rate at which returns are compounded from point to point.

CAGR can be simply calculated by using the formula:

**CAGR = [(Ending Amount/Beginning Amount) ^{(1/N)} – 1]**

In the above formula,

**The ending amount is the value of the investment at the end of the investment period**.

**The beginning amount** **is the value of the investment at the beginning of the investment period**.

**N** is the number of years you have invested.

Calculating CAGR can help you understand if the returns of the stocks are in line with your expectations, even though it is more complex than XIRR calculations. It may be in your best interest to reconsider your investment if it isn’t performing well.

But keep in mind that CAGR is effective for lump-sum investments only. The calculation does not take into account periodic investments in the case of SIPs or share market investments based on the initial and final values. That is why we prefer XIRR for gradual or systematic investments for a better understanding of the returns.

**What Is a Good CAGR?**

Did you now understand what CAGR means in mutual funds? Now let’s try to learn about – what is a good CAGR? **Anything between 8% and 12% is a good CAGR percentage for you if you’re an investor seeking consistent returns by investing in powerful and large financial market companies**. It is expected that 15% to 25% should be a good percentage for investors who are willing to invest in moderate to high-risk funds.

Now you know what XIRR means in mutual funds as well as what is a good CAGR.

**Also Read: **What do we mean by Exit Load in Mutual Fund?

**XIRR vs CAGR: Which One Is Better?**

After knowing what is a good XIRR and what is a good CAGR, let’s compare XIRR vs CAGR. **Your CAGR represents the value of your annual return over an extended period**. However, because this method does not take into account multiple cash flows, it is inappropriate for calculating returns on frequent investments or cash flows over a range of periods. Hence, XIRR is the best choice in these circumstances.

Here is a comparison of XIRR vs CAGR which might help you understand the different features:

Basis of Comparison |
XIRR |
CAGR |

Definition | The average rate of return realized on all investments made in a fund over a given period. | A measure of how quickly an investment has grown each year over a specific time frame (more than one year). |

Return Measured In | Annual Returns | Absolute Returns |

Investment Period | Timing of the investments/ cash flows is essential as it has a direct impact on the returns. Alternatively, the gains for investors may be higher or lower. | The time period from the investment’s initial date to its redemption date is what counts because CACG only takes into account one cash flow. |

Cash Flow Consideration | XIRR means in mutual funds is calculated by considering multiple cash flows. | Multiple investments made in the scheme over the course of a certain period are not considered when calculating CAGR. |

Ideal For Investment Type | This metric effectively assesses both the performance of SIP investments and lump sum investments. | Considering only one cash flow at a time, CAGR only evaluates the performance of lump sum investments. |

XIRR is the most thorough method of calculating your returns in the event of multiple transactions, particularly when your investment time is irregular. Using a SIP to invest in mutual funds will therefore result in cash outflows and cash inflows. In some circumstances, the length of time spent investing has a big impact on how the returns are calculated. In light of this, the Extended Internal Rate of Return (XIRR) in mutual funds plays a crucial role.

We hope you now understand what is a good XIRR and what is a good CAGR. We also went over some basics about what **XIRR means in mutual funds**, how XIRR calculator works, CAGR meaning in share market and how XIRR vs CAGR compare with each other.

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