XIRR vs CAGR vs Absolute Return Calculator

Enter a mock SIP scenario to visually understand why these three metrics produce wildly different percentage returns on the exact same data.

The SIP Scenario

₹
₹
Yrs
₹
Total Invested: ₹4,10,000 | Total Profit: ₹90,000

Absolute Return

0%

Calculated simply as:
(Profit / Total Invested) * 100

Flaw: Completely ignores time. A 20% return in 1 year looks exactly the same as a 20% return over 10 years using this metric.

CAGR

0%

Compound Annual Growth Rate.
(Final / Total Invested)^(1/Yrs) - 1

Flaw (for SIPs): Assumes the entire Total Invested amount was put in on Day 1, which artificially drags down the percentage for SIPs.
Accurate for SIPs

XIRR

0%

Extended Internal Rate of Return.
Accounts for exact cashflow dates

Why it's accurate: It knows that the SIP you made in month 35 only had 1 month to grow, and calculates the true annualized rate accordingly.

Which metric should you actually use?

1. Use CAGR for Lumpsum

If you buy a house for ₹50 Lakhs today and sell it for ₹1 Crore exactly 10 years later, use CAGR. It will accurately tell you that your house grew at ~7.17% annually.

2. Use XIRR for SIPs & Dynamic Portfolios

If you are investing ₹10,000 every month, you cannot use CAGR. This is because your first ₹10,000 has been growing for years, while your most recent ₹10,000 has only been growing for a few days. XIRR (Extended Internal Rate of Return) acts as a personal calculator that assigns a specific weight and time duration to every single transaction you make (buys and sells) to give you one unified, accurate annual growth rate.

3. Use Absolute Return for Short Term Trading

If you bought a stock on Monday for ₹100 and sold it on Thursday for ₹105, your absolute return is 5%. Annualizing a 4-day trade is mathematically silly (it would look like hundreds of percent), so Absolute Return is the only metric that makes sense for short time frames.

Key Characteristics & Comparison Overview

Feature / Parameter Details / Rules Tax Implications
Primary Returns Guaranteed / Market-Linked Growth Taxable at Income Tax Slab Rates
Compounding / Payout Quarterly / Annual Compounding TDS deductions applicable where threshold met
Lock-in & Liquidity Specified Tenure / Market Liquidity Premature withdrawal penalties apply

When to Use XIRR vs CAGR vs Absolute Return

Common Pitfalls in Investment Return Analysis

Return Calculation Golden Rule

Always evaluate Mutual Fund SIP portfolios using XIRR, single stock buys using CAGR, and intraday/F&O trades using Absolute Return.

Frequently Asked Questions

What is Absolute Return?
Absolute return is the simplest measure of growth. It is simply the total profit divided by the total investment, expressed as a percentage. It does not account for how long it took to earn that profit.
What is CAGR?
CAGR (Compound Annual Growth Rate) measures the smooth, annualized rate of return of an investment over a specific time period. It is best used for single lumpsum investments.
What is XIRR?
XIRR (Extended Internal Rate of Return) is a metric that calculates the annualized return for a series of cash flows occurring at irregular intervals. It is the most accurate way to measure SIP returns.
Why is XIRR different from CAGR for SIPs?
Because in an SIP, you don't invest all your money on day one. Each monthly installment is invested for a different duration. XIRR accounts for the exact dates each rupee was invested, while CAGR wrongly assumes all money was invested on day one.
When should I use Absolute Return?
Absolute return is only useful for short-term trades (less than 1 year). For anything longer than a year, it is misleading because it ignores the time value of money.
Can XIRR be negative?
Yes, if the final value of your portfolio is less than the total amount you invested, your XIRR (and CAGR/Absolute Return) will be negative.
How does Zerodha or Groww calculate my portfolio return?
Most modern brokerage platforms display XIRR as the primary metric for your overall portfolio because you likely have multiple buy and sell transactions occurring on different dates.
Why does CAGR give incorrect results for SIP investments?
CAGR assumes a single lump sum investment at the start. Since SIP involves multiple periodic investments at different times, XIRR is required to account for distinct cash flow dates.