📊 CAGR vs XIRR: Master Your Returns
Learn which metric to use for accurate investment return calculations with practical examples
🎯 The objective of any investment is to generate returns. While calculating returns, investors encounter terms like CAGR and XIRR – both used to gauge investment effectiveness but serving different purposes.
💡 Key Insight: CAGR calculates point-to-point returns for single investments, while XIRR handles multiple investments at different times like SIPs.
📈 What is CAGR?
Compounded Annual Growth Rate (CAGR) calculates the average annual return of an investment, assuming returns are compounded every year. Ideal for single, one-time investments.
CAGR Formula
📊 CAGR Calculation Example
Initial Investment
₹1,00,000
Time Period
5 Years
Final Value
₹1,50,000
CAGR Result
8.45% per annum
🔄 What is XIRR?
Extended Internal Rate of Return (XIRR) calculates returns on investments made at different intervals, making it perfect for SIPs and multiple investments.
XIRR Excel Formula
📋 XIRR Calculation Example
Monthly SIPs
₹5,000 each
Total Invested
₹30,000
Final Value
₹32,000
XIRR Result
24.63%
📅 XIRR Cash Flow Table
| Date | Amount | Type |
|---|---|---|
| 01-01-2024 | -₹5,000 | Investment |
| 01-02-2024 | -₹5,000 | Investment |
| 01-03-2024 | -₹5,000 | Investment |
| 01-04-2024 | -₹5,000 | Investment |
| 01-05-2024 | -₹5,000 | Investment |
| 01-06-2024 | -₹5,000 | Investment |
| 01-07-2024 | +₹32,000 | Redemption |
⚖️ Key Differences
| Factor | CAGR | XIRR |
|---|---|---|
| Meaning | Point-to-point return calculation | Returns for multiple investments |
| Best For | Lump-sum investments | SIPs & regular investments |
| Timing Consideration | Single time point | Exact timing of each cash flow |
| Investment Type | One-time investments | Multiple inflows/outflows |
| Complexity | Simple calculation | Requires Excel/software |
🎯 When to Use Which?
📊 Use CAGR When:
• One-time lump-sum investment
• Calculating average annual growth
• Comparing different investments
• Simple point-to-point analysis
🔄 Use XIRR When:
• Multiple SIP investments
• Additional lump-sum top-ups
• Irregular investment patterns
• Need exact annualized returns
🚀 Master Your Investment Analysis
Understanding these metrics is crucial for accurate investment evaluation. Choose the right tool for your investment pattern.
Calculate Your ReturnsRead more financial guides: vibuzone.com/blog/