XIRR, or Extended Internal Rate of Return, is a method used to calculate the actual returns on your mutual fund investments, especially when there are multiple transactions like SIPs (Systematic Investment Plans), lump sum investments, redemptions (withdrawals), or switches made at different times.
Let’s say you invest ₹5,000 every month for one year and assume at the end of the year your total investment is worth ₹65,000. XIRR calculates the annualized return considering when you invested and how much you invested. Unlike simple return calculations, XIRR takes into account the exact dates and amounts of each cash flow (SIP instalment). This makes it the most accurate way to track mutual fund performance for investors.
