What exactly is XIRR in mutual funds… I keep seeing this term in my portfolio. how is it different from normal returns, nd how does it actually show the real return on my sip investments.. can someone explain this in simple terms…
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hi @amith_nelson , XIRR in mutual funds basically shows the actual return on your investments when money is invested at different times, which is exactly how SIPs work.
See, in a SIP you invest every month. Your first ₹5,000 stays invested longer, the next one slightly less, and the latest SIP only for a few months. Because of this, simple return numbers like absolute return don’t really tell the full story.
That’s where XIRR comes in. It takes a look at all the SIP investments, the dates on which you have invested that amount, and the current value of all your investments, and finally arrives at a single number that represents the annual return on investment.
If the SIP investment portfolio is showing an XIRR of 12%, it simply means that your investments have grown at an average rate of 12% per annum.
In that sense, XIRR is the most practical way to assess SIP performance. Instead of confusing numbers, it tells you straight bhai, your money is compounding roughly at this rate per year.