When you check mutual fund returns, you see terms like CAGR, XIRR, absolute return. Here's exactly what they mean and which one to use when comparing funds.
Absolute Return = (Current Value − Invested Amount) / Invested Amount × 100
Example: Invested ₹1 Lakh, now worth ₹1.5 Lakh → Absolute Return = 50%
Problem: Doesn't account for time. 50% in 1 year is excellent. 50% in 10 years is terrible. So absolute return is only useful for comparing same time periods.
CAGR = (Final Value / Initial Value)^(1/Years) − 1
Example: ₹1L invested → ₹3.1L in 10 years. CAGR = (3.1/1)^(1/10) − 1 = 12% per year.
CAGR is best for lumpsum investments. It shows the constant annual rate that would achieve the same result.
XIRR is the annualized return for investments with multiple cash flows at different dates — exactly what SIP is. Each monthly SIP installment is a separate cash flow on a different date.
CAGR would be inaccurate for SIP because different installments have different holding periods. XIRR handles this correctly.
How to calculate XIRR: In Excel/Google Sheets, use =XIRR(cash_flows, dates). Negative values for investments, positive for redemptions/current value. Date column must have actual dates of each transaction.
Use our XIRR Calculator to calculate your actual returns from any mutual fund investment.
Use our free calculators to see exactly how your money grows.
Disclaimer: This article is for educational purposes only. Not investment advice. Contact: myself@sipcalculators.in