Understanding XIRR meaning is essential for anyone who wants to calculate accurate investment returns, especially for investments with irregular cash flows like SIPs (Systematic Investment Plans).
XIRR, which stands for Extended Internal Rate of Return, helps investors determine the actual annualized return on their investments when there are multiple transactions at different times. Unlike CAGR, which assumes a single investment, XIRR considers both the timing and size of each cash flow, making it much more accurate for real-life scenarios.
For example, if you’ve been investing in a mutual fund via SIPs for a few years or have made multiple withdrawals and redemptions, XIRR will give you a precise picture of your overall returns. It’s especially useful for mutual fund investors who want to evaluate the performance of their portfolios effectively.
Have you used XIRR to analyze your investments? What’s your experience with it, and do you find it more reliable than CAGR? Let’s discuss!