What is XIRR and how is it used?

XIRR is an abbreviation for Internal Rate of Return. (We will get to the X part later). In comparison, CAGR is the Compounded Annual Growth Rate.

We use CAGR when we gauge the mutual funds’ performance. When you gauge the value of your investments, you use XIRR. So if you are doing an SIP every month you will require XIRR to evaluate what money you have made.

How to calculate XIRR?

To calculate XIRR, you will require three essential attributes. Date, Cash Flow and Portfolio Value.

XIRR can be easily calculated using Microsoft Excel. Excel provides an inbuilt function to calculate XIRR.

XIRR formula in excel is:= XIRR (value, dates, guess)

This, will give you your own XIRR. Your money management abilities �" adding & withdrawal of investments  �" are then going to be calculated through your XIRR.

You can use XIRR over time and check how your investments have fared.

Limitations of XIRR

XIRR has certain limitations as it overemphasizes cash flows. For instance, your cash flows may not match the market momentum. If you happen to invest in the month when the market is at low and by the end its peak, then your XIRR will be marginal. Your XIRR will be overshadowed because you added money when the market was high, thus receiving lesser units.

Thus,  XIRR is your asset allocation or cash-flow based return. You might need it to see how well your investment has performed.

Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

 

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