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CAGR vs XIRR: Why SIP Investors Misread Returns
CAGR and XIRR are two different ways to measure investment returns.
CAGR works best when you invest one amount once and leave it invested.
XIRR works better when you invest many times, such as through a monthly SIP.
Each SIP payment remains invested for a different amount of time.
XIRR considers the amount and date of every investment, withdrawal, or top-up.
In the example, a ₹10,000 monthly SIP for three years produced a CAGR of about 7.72% but an XIRR of about 15%.
The two numbers differ because CAGR treats the full investment as if it were invested on the first day.
SIP investors should usually focus on XIRR when judging their personal portfolio performance.
Indian SIP contributions reached ₹31,961 crore in July 2026, up from ₹3,122 crore in April 2016, according to AMFI data.
CAGR measures steady annual growth for a single investment made at one starting point and withdrawn at one ending point.
XIRR annualises returns across multiple cash flows made on different dates, making it more suitable for SIPs.
In an example involving a ₹10,000 monthly SIP for three years, CAGR was approximately 7.72%, while XIRR was approximately 15%.
Investors should generally use CAGR for lump-sum investments and XIRR for SIPs, top-ups, step-up contributions, or partial withdrawals.
- Who
- Indian retail investors, especially those investing through systematic investment plans, or SIPs.
- What
- The article explains why CAGR and XIRR can show different returns and when each metric should be used.
- Where
- India.
- When
- The article cites SIP contribution data for July 2026 and compares it with April 2016; its examples cover three- and five-year periods.
- Why
- CAGR and XIRR measure returns using different assumptions, so confusing them can lead investors to misread their portfolio performance.
Key facts
- July 2026 SIP contributions
- ₹31,961 crore
- April 2016 SIP contributions
- ₹3,122 crore
- CAGR meaning
- Compound annual growth rate
- XIRR meaning
- Extended internal rate of return
- SIP example
- ₹10,000 per month for three years
- Total invested in example
- ₹3,60,000
- Final value in example
- ₹4,50,000
- Calculated returns in example
- Approximately 7.72% CAGR and 15% XIRR
Sources
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