XIRR vs CAGR — what is the difference?
CAGR measures growth between two dates; XIRR also accounts for when each deposit or withdrawal happened.
CAGR and XIRR are both ways of turning a messy history of growth into a single yearly rate. They answer slightly different questions, which is why they can disagree for the same investment.
CAGR: one start, one end
CAGR stands for compound annual growth rate. It takes a starting value, an ending value and the time between them, and gives the steady yearly rate that would connect the two. It works cleanly when money goes in once at the start and nothing is added or taken out along the way. A single lump sum held for several years is the classic case.
XIRR: many dates, many amounts
Real investing is rarely that tidy. A monthly SIP puts in a different amount of money at a different time, every month. Some of that money has had years to grow, and some has had days. XIRR, the extended internal rate of return, takes every dated deposit and withdrawal plus the current value, and finds the single yearly rate that explains the whole set. Because it weights each amount by how long it was invested, it is often called a money-weighted return.
Why the two can differ
If money is added late, after a strong period, a simple start-to-end calculation can make results look better or worse than the experience of the money actually invested. XIRR reflects the timing of the actual cash flows, so it tends to describe what the investor really earned on the money they put in. CAGR describes only how the value moved between two dates.
When each is useful
- CAGR suits comparing the growth of a single fund or index between two dates.
- XIRR suits a personal portfolio with SIPs, top-ups or withdrawals.
- Quoting one figure beside the other, as if they measured the same thing, can mislead.
How Mandala shows this
Mandala computes XIRR from actual transaction lots, using each purchase, redemption and switch date, and shows it per holding and for the whole portfolio. A free XIRR calculator on this site lets anyone enter their own dated cash flows and see the result. Past figures describe what happened and are not an indication of what will happen next.
Watch
From the Mandala channel on YouTube. The video shows the Mandala feature itself; the explainer above is the educational part. Watch on YouTube
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Educational content only, not investment advice. Examples are illustrative, and nothing here is a recommendation to buy, sell or hold any product. Investments are subject to market risks.