Why is my SIP XIRR higher than the fund's CAGR?

Because your money was invested for less time on average. Each SIP instalment has its own holding period, and later instalments were deployed only briefly. XIRR annualises the return on the money actually at work, so it is usually higher than a lump-sum CAGR over the same window when markets rose.

Is XIRR the same as IRR?

XIRR is IRR with irregular dates. Plain IRR assumes cashflows arrive at equal intervals; XIRR uses the actual calendar date of each one, which is what real investing looks like.

There is no universal answer, and any figure quoted as a target should be treated with suspicion. A return is only interpretable against the risk taken, the period covered, and the alternative you would otherwise have held.

Lens · 12 May 2026

XIRR vs CAGR: which return number is telling you the truth?

CAGR and XIRR answer different questions, and using the wrong one can overstate a SIP return by several percentage points. The formulas, a worked example, and when each applies.

3 min read

Two people can hold the same investment over the same period and quote different returns, both honestly. The difference is usually not arithmetic error – it is that one computed CAGR and the other computed XIRR, and those measure different things.

CAGR answers a single-cashflow question

Compound Annual Growth Rate assumes one amount went in, one amount came out, and nothing happened in between. It smooths the whole period into one constant annual rate.

CAGR = (Ending Value / Beginning Value) ^ (1 / Years) − 1

Years is the elapsed time in years, including fractions.

That assumption is fine for a lump sum. It breaks the moment money moves in or out partway through, because CAGR has nowhere to put the timing of those flows.

XIRR answers a many-cashflow question

XIRR – the extended internal rate of return – is the single annualised rate that makes the present value of every cashflow, on the exact date it happened, sum to zero. It is defined implicitly, which is why spreadsheets solve it iteratively rather than with a closed form.

0 = Σ Cᵢ / (1 + r) ^ (dᵢ − d₀ ⁄ 365)

Cᵢ is each cashflow (investments negative, redemptions and final value positive), dᵢ its date, d₀ the first date, and r the XIRR being solved for.

Worked example: a 12-month SIP

₹10,000 invested on the 1st of each month for 12 months – ₹1,20,000 in total. On the final valuation date the holding is worth ₹1,32,000.

Method	Calculation	Result
Absolute return	(1,32,000 − 1,20,000) / 1,20,000	10.00%
CAGR, treating it as a lump sum	(1,32,000 / 1,20,000) ^ (1/1) − 1	10.00%
XIRR, using the 12 actual dates	solved iteratively	≈ 18.5%

The naive calculation, and the correct one

The gap is large and it is not a rounding artefact. The instalment paid in month 12 was invested for a few days, not a year. Averaged across all twelve, the money was only deployed for roughly six and a half months – so the same ₹12,000 of profit was earned by a much smaller average balance, and the annualised rate is correspondingly higher.

Months in the market, per instalment. The declining staircase is the whole reason the two figures differ: ₹1,20,000 went in, but not on day one.

Which one should you use?

Situation	Correct measure	Why
Lump sum, untouched	CAGR or XIRR (identical)	One flow in, one out
SIP or recurring investment	XIRR	Timing of each instalment matters
Withdrawals partway through	XIRR	CAGR cannot represent an outflow
Comparing two funds' published records	CAGR	It is what fund factsheets quote, so it compares like with like

Three traps worth knowing

01Comparing your XIRR against a fund's published CAGR. The fund is quoting a lump-sum figure; your SIP XIRR is a different measure. The comparison is meaningless in either direction.
02Ignoring dividends and payouts. If a payout left the investment, it is a positive cashflow on its date. Omitting it understates the return.
03Annualising a period under a year. XIRR extrapolates a short period to a full year, so four strong months can project to a spectacular annual figure that means nothing. Below about a year, quote the absolute return.

Common questions

Why is my SIP XIRR higher than the fund's CAGR?: Because your money was invested for less time on average. Each SIP instalment has its own holding period, and later instalments were deployed only briefly. XIRR annualises the return on the money actually at work, so it is usually higher than a lump-sum CAGR over the same window when markets rose.
Is XIRR the same as IRR?: XIRR is IRR with irregular dates. Plain IRR assumes cashflows arrive at equal intervals; XIRR uses the actual calendar date of each one, which is what real investing looks like.
What is a good XIRR?: There is no universal answer, and any figure quoted as a target should be treated with suspicion. A return is only interpretable against the risk taken, the period covered, and the alternative you would otherwise have held.

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CAGR answers a single-cashflow question

XIRR answers a many-cashflow question

Which one should you use?

Three traps worth knowing

Common questions

Related

Mutual fund portfolio overlap: how to measure what you actually own

What a trade actually costs in India: brokerage, STT, GST and slippage

All insights.