📚 Financial Education Library › Article #28
Published: 2026-06-21 · By Bhanuprakash Sardesai
28. CAGR vs. XIRR: Which Return Metric Matters for SIPs?
CAGR and XIRR are the two return numbers you'll see on every Indian fund statement — and they rarely agree. CAGR assumes a single lump sum invested once; XIRR accounts for the reality of multiple cash flows on different dates. Using the wrong one can make a mediocre SIP look brilliant, or a brilliant lumpsum look ordinary.
CAGR measures the smoothed annual growth rate of an investment over a specific period, assuming a single lumpsum investment at the start and a single redemption at the end. CAGR is perfect for measuring lumpsum investment returns. If you invested ₹1 lakh and it grew to ₹3.1 lakh in 10 years, your CAGR is 12%.
However, CAGR fails when there are multiple cash flows at different times – exactly what happens with SIPs. This is where XIRR comes in. XIRR calculates the internal rate of return considering the exact dates and amounts of each cash flow. For SIP investors, XIRR is the more accurate metric. You can instantly estimate your future returns using our free online SIP Calculator – while the calculator uses the future value of annuity formula, understanding XIRR helps you evaluate your actual historical returns accurately.
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