XIRR: 0%
Use our XIRR Calculator to calculate the annualized rate of return for investments with irregular cash flows.
Simply input your investment details, including the initial investment, cash flow amounts, and corresponding dates.
The calculator will compute the XIRR and provide you with an accurate annual return based on the actual timing of your transactions.
XIRR, or Extended Internal Rate of Return, is a key financial metric used to measure the profitability of investments with irregular cash flows. Unlike traditional IRR (Internal Rate of Return), which assumes that all cash flows occur at regular intervals, XIRR takes into account the exact dates of each cash inflow and outflow.
This makes XIRR a more accurate measure of investment performance in real-world scenarios, where transactions such as withdrawals, deposits, or interest payments may occur at varying intervals.
XIRR is particularly useful for evaluating investments like mutual funds, Systematic Investment Plans (SIPs), and private equity investments, where contributions are not made in a uniform manner.
By factoring in both the timing and amount of each cash flow, XIRR gives investors a clearer picture of how their money grows over time, especially when the investment's cash flows are unpredictable.
The formula for XIRR calculates the annualized rate of return that sets the net present value (NPV) of all cash flows to zero, using the following components:
Where:
XIRR works through an iterative process to find the interest rate (R) that makes the present value of all cash inflows and outflows equal to zero. This allows for a more precise return rate, taking into account the actual timing of each transaction.
Imagine you make an $10,000 investment in a debt instrument that offers fixed monthly payouts. Each month, you receive $100 in interest or returns. This continues for 12 months, and at the end of the 12-month period, you decide to withdraw your initial $10,000 investment.
Let's break this down:
You invest $10,000 on 02-03-2024. This is your initial outflow, so it will be represented as a negative cash flow.
Starting from 02-04-2024, you begin receiving $100 monthly payouts for the next 12 months. These are cash inflows, represented as positive cash flows for each month.
On 02-03-2025, after a full year of monthly payouts, you withdraw your initial $10,000 investment. This is a final inflow, and it is also represented as a positive cash flow because you are reclaiming your principal.
| Date | Cash Flow | Type |
|---|---|---|
| 02-03-2024 | $-10,000 | Initial Investment |
| 02-04-2024 | $100 | Monthly Payout |
| 02-05-2024 | $100 | Monthly Payout |
| 02-06-2024 | $100 | Monthly Payout |
| 02-07-2024 | $100 | Monthly Payout |
| 02-08-2024 | $100 | Monthly Payout |
| 02-09-2024 | $100 | Monthly Payout |
| 02-10-2024 | $100 | Monthly Payout |
| 02-11-2024 | $100 | Monthly Payout |
| 02-12-2024 | $100 | Monthly Payout |
| 02-01-2025 | $100 | Monthly Payout |
| 02-02-2025 | $100 | Monthly Payout |
| 02-03-2025 | $10,000 | Withdrawal |
XIRR is calculated using both the timing and the amount of each cash flow. The formula considers the date of each payment and calculates the annualized rate of return that would make the present value of all cash flows equal to zero.
Since the payouts are fixed and regular, the XIRR here reflects a steady return over the 12 months. The return of 12.65% per annum is calculated by factoring in:
In this scenario, the cash flows are uniform, meaning the return is fairly predictable and stable. This leads to a consistent XIRR of 12.65%, which is a good result, showing that the investment is generating a healthy return of 12.65% annually.
Now, imagine a scenario where your monthly payouts vary each month. For example, you start with an investment of $10,000, and instead of receiving a fixed $100 every month, the payouts fluctuate — for instance, $-600 in February, $200 in March, and $1,000 in January of the following year.
Despite the total return still being $1,200 at the end of the year, the XIRR calculation here might yield 11.45% per annum.
This volatility in payouts, along with the irregular intervals between transactions, leads to a different XIRR compared to the fixed payout scenario. XIRR accounts for both the timing and amount of each payment, which is crucial in understanding how the investment performs over time, especially when cash flows are inconsistent.
On the other hand, CAGR (Compound Annual Growth Rate) would simplify the scenario by assuming consistent growth, ignoring the fluctuating nature of the payouts. This difference demonstrates the power of XIRR in capturing the true value of an investment in more dynamic conditions.
In essence, XIRR provides a more accurate reflection of the return by factoring in both the size and timing of each cash flow, helping investors make more informed decisions.
A good XIRR depends on the type of investment:
A higher XIRR is generally considered better, but it's also important to consider factors like consistent returns, investment duration, and the volatility of the asset.
While XIRR is a versatile tool for calculating the return on investments with irregular cash flows, it is essential to understand its comparison with other return metrics like IRR (Internal Rate of Return) and CAGR (Compound Annual Growth Rate).
Q1: What does a 10% XIRR mean?
A 10% XIRR means that the investment is providing an annualized return of 10% when considering both the timing and amount of cash flows.
Q2: Is XIRR the same as ROI (Return on Investment)?
No, XIRR is more advanced than simple ROI, as it factors in the timing of cash flows, while ROI only measures the total return on an investment without considering time.