CAGR vs IRR vs XIRR: Which Return Metric to Use When

CAGR works for lumpsum, XIRR for SIPs, and IRR for projects. Stop using the wrong metric — here is a clear guide with Indian examples.

1.CAGR: one investment, one redemption

Use CAGR when you made a single lumpsum investment and want to know the annualised return. Example: bought Reliance stock at ₹1,000 in 2020, it's ₹2,800 in 2026. CAGR = (2800/1000)^(1/6) − 1 = **18.7%**. CAGR is NOT appropriate for portfolios with multiple purchases at different times.

2.XIRR: multiple investments over time (SIPs)

When you invest ₹10,000 every month for 5 years in a mutual fund, each installment has a different entry NAV and different holding period. XIRR accounts for the timing and amount of every cash flow. Example: SIP of ₹10,000/month in Nifty 50 index fund from 2021-2026 might show XIRR of **14.2%**, while the fund's point-to-point CAGR might be 12.1%. The difference arises because SIP buys more units when markets are low.

3.IRR: business and real estate investments

IRR (Internal Rate of Return) is used when cash flows are irregular — like rental income from property. Example: bought a ₹80 lakh flat, received ₹25,000/month rent for 10 years, sold at ₹1.6 crore. IRR computation accounts for the purchase, every monthly rent, and the sale — giving you a true annualised return of roughly **8.5%**. Most people only count price appreciation (7.2% CAGR) and forget that rent adds to total return.

4.Key takeaway

Lumpsum → CAGR. SIP/multiple investments → XIRR. Real estate/business with irregular cash flows → IRR. Using the wrong metric can overstate or understate your returns by 2-5%. Our CAGR calculator handles the lumpsum case — for SIPs, compute XIRR in Excel or Google Sheets using the XIRR function.