How to Calculate XIRR (Extended Internal Rate of Return)
XIRR calculates the annualized return of an investment with irregular cash flows. Unlike CAGR, it handles multiple investments and withdrawals at different dates.
XIRR Formula
Σ [Ci / (1+r)^((di-d0)/365)] = 0
Where:
- Ci = Cash flow at date i (negative for investments, positive for returns)
- r = XIRR (the rate we solve for)
- di = Date of cash flow i
- d0 = Date of first cash flow
Step-by-Step:
- 1
List all cash flows
Record every investment (negative) and withdrawal/redemption (positive) with dates.
- 2
Include current value
Add the current portfolio value as the last positive cash flow with today's date.
- 3
Solve iteratively
XIRR is solved using numerical methods (Newton-Raphson).
Worked Examples:
SIP returns calculation
12 monthly SIPs: ₹10,000 eachCurrent Value: ₹1,35,000 after 1 year
Result: XIRR ≈ 18.4%
XIRR accounts for the fact that earlier SIPs have been invested longer than later ones.