Published: 2026-06-17 · By Bhanuprakash Sardesai
28. CAGR vs. XIRR: Which Return Metric Matters for SIPs?
When evaluating investment returns, you'll encounter two common metrics: CAGR (Compound Annual Growth Rate) and XIRR (Extended Internal Rate of Return). Understanding the difference is crucial because using the wrong metric can give you a distorted picture of your actual performance.
CAGR measures the smoothed annual growth rate of an investment over a specific period, assuming a single lumpsum investment at the start and a single redemption at the end. CAGR is perfect for measuring lumpsum investment returns. If you invested ₹1 lakh and it grew to ₹3.1 lakh in 10 years, your CAGR is 12%.
However, CAGR fails when there are multiple cash flows at different times – exactly what happens with SIPs. This is where XIRR comes in. XIRR calculates the internal rate of return considering the exact dates and amounts of each cash flow. For SIP investors, XIRR is the more accurate metric. You can instantly estimate your future returns using our free online SIP Calculator – while the calculator uses the future value of annuity formula, understanding XIRR helps you evaluate your actual historical returns accurately.
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