Question 1

What is XIRR (Extended Internal Rate of Return)?

Accepted Answer

XIRR (Extended Internal Rate of Return) is an annualized return metric that calculates the exact internal rate of return for a series of cash flows occurring at irregular calendar dates.

Question 2

Why is XIRR used for mutual fund SIP returns instead of CAGR?

Accepted Answer

CAGR can only measure return on a single lump sum. Because an SIP involves multiple purchases on different calendar dates over months or years, XIRR is required to account for the unique holding period of each installment.

Question 3

How is XIRR calculated?

Accepted Answer

XIRR is solved numerically using Brent's algorithm from the equation: ∑ [ CF_i / (1 + XIRR)^((date_i - date_0) / 365) ] = 0, where CF_i are cash inflows and outflows.

Question 4

What is the difference between IRR and XIRR?

Accepted Answer

IRR assumes all cash flows happen at fixed, equal intervals (e.g. exactly every 365 days). XIRR uses exact calendar dates, making it accurate for real-world investments with weekends, holidays, and irregular deposits.

Question 5

Can XIRR be calculated for stock trading portfolios?

Accepted Answer

Yes. Whenever you buy stocks on different dates and redeem partial or total holdings later, XIRR gives the true annualized performance of your invested capital.

Question 6

What does a negative XIRR mean?

Accepted Answer

A negative XIRR indicates that your current portfolio valuation is lower than the net capital invested, representing an annualized loss across your cash flow history.

Question 7

How should current portfolio value be entered in an XIRR calculation?

Accepted Answer

The current market value of your portfolio should be entered as a positive (+) cash flow on today's date, representing the hypothetical redemption value.

Question 8

Why does XIRR look unusually high for investments held under 1 year?

Accepted Answer

XIRR annualizes all returns to a 365-day basis. If an investment gains 10% in 15 days, annualizing that short burst produces an artificially extreme XIRR. For holding periods under 1 year, absolute return is more meaningful.

Question 9

Does XIRR account for mutual fund dividends or STCG/LTCG taxes?

Accepted Answer

XIRR calculates returns based on the actual cash flows entered. If you receive dividends, include them as positive cash inflows on their payout dates. Taxes are not deducted unless net post-tax cash flows are entered.

Question 10

Is XIRR the standard performance metric shown by Indian mutual fund apps?

Accepted Answer

Yes. Major Indian mutual fund platforms, registrar portals (CAMS, KFintech), and fund houses universally display XIRR as the official annualized return on SIP portfolios.

Metric	Transaction Timing	Best Use Case
XIRR	Exact irregular calendar dates	Mutual Fund SIPs, multiple stock buys & sales
CAGR	Single start & single end date	One-time lump sum investments
IRR	Fixed periodic intervals (annual/monthly)	Capital budgeting, corporate projects

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