XIRR: A Guide to Tracking Your Investment Returns

 What does XIRR mean?

The Extended Internal Rate of Return (XIRR) is a powerful tool for investors to figure out their annualized return on assets. It does this by:

  • Several cash flows (buying and selling).
  • The exact times of the transactions.
  • Value of the portfolio right now, including dividend.
It is more correct to use XIRR to figure out your returns when investing in stocks, mutual funds, ETFs, or other assets with variable cash flows than traditional CAGR.

Why Should You Utilize XIRR When Investing?

  • Takes into account the timing and amounts of cash inflows and outflows; tracks real performance.
  • Appropriate for Systematic Investment Plans (SIPs) or portfolios that use staggered contributions, or for several investments.
  • Accounts for dividends or any extra financial inflows, improving accuracy, and includes them in the calculation. 

Why is XIRR better than CAGR?

It's easy to figure out CAGR, but it assumes:
  • An starting investment of one.
  • During the investment time, there were no other cash flows.
However, XIRR takes care of:
  • Several cash flows.
  • Exactly when transfers happen.
  • Dividends or taking money out in parts.

FAQs on XIRR Calculation 

Q1: What distinguishes XIRR from CAGR? 

Whereas XIRR takes into consideration several cash flows and dates, CAGR implies a single investment.

Q2: Can dividends be included in XIRR? 

Indeed, dividends are recorded in the transaction column as cash inflows.

Q3: What occurs if I neglect to incorporate a cash flow? 

Results will be erroneous if any transactions are missed. Keep meticulous track of all inflows and outflows.

Q4:XIRR may be negative, right?

Indeed, if your portfolio has lost value over time, your XIRR will be negative.

Q5: Is XIRR appropriate for SIPs?

Of course! The most precise method for calculating SIP returns is XIRR.














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