SIP Returns Explained: XIRR vs CAGR vs Absolute Return

Open your mutual fund app a few months after starting a SIP and you will usually see two numbers side by side. One says something like "Returns +9.3%". The other says "XIRR 35.1%". Six months later the same app may show a red minus sign, and you start wondering whether the whole SIP idea was a mistake.

The confusion comes from three different ways of measuring the same money: absolute return, CAGR and XIRR. Each answers a different question, and only one of them is a yearly rate you can hold up against an FD.

One SIP, three different answers

Take a plain SIP of ₹5,000 a month for 5 years. You put in ₹3,00,000. If the fund gives 12% a year, the SIP calculator shows a final value of ₹4,12,432. Ask "what return did I get?" and there are three possible answers.

Same money, same fund. The 6.6% makes the SIP look worse than an FD, and 37.5% isn't a yearly figure at all. Only XIRR can be fairly put next to an FD or PPF rate.

Absolute return: simple, but blind to time

Absolute return is just (current value − amount invested) ÷ amount invested × 100. In the example above, ₹1,12,432 of gain on ₹3,00,000 is 37.5%.

It is fine for a quick look at something held for less than a year. Beyond that it misleads, because it ignores how long the money took to grow. ₹1 lakh in a fund at 12% a year becomes ₹3,10,585 in 10 years on the lumpsum calculator. That's an absolute return of 210.6%. Sounds like a jackpot. It is just 12% a year, compounded.

The same trick works the other way. A bank RM pitching a plan says "your money grew 80% in 7 years". Work it out and that's about 8.8% a year. PPF gives 7.1% right now, tax-free, with no market risk. Suddenly 80% isn't so exciting. Always ask: over how many years?

CAGR: right for a lumpsum, wrong for a SIP

CAGR (compound annual growth rate) is the steady yearly rate that takes a starting amount to an ending amount: (end value ÷ start value)^{1 ÷ years} − 1.

For a one-time investment it works perfectly. ₹1 lakh that becomes ₹1,76,234 in 5 years has a CAGR of exactly 12%, because every rupee was invested for the full 5 years. The returns you see against "1 year, 3 years, 5 years" on a fund's page are this kind of lumpsum CAGR.

A SIP breaks this. Your first ₹5,000 was invested for 5 years, your last ₹5,000 for one month. On average a rupee in a 5-year SIP has been in the market for only about two and a half years. When you plug ₹3 lakh and ₹4.12 lakh into the CAGR formula with 5 years, you pretend all of it sat there for 5 years. That's where the wrong 6.6% comes from. If some website calculates "CAGR" on your total SIP amount, ignore it.

XIRR: one rate that fits every instalment

XIRR stands for extended internal rate of return. Forget the name. It finds one yearly rate such that, if every instalment had grown at that rate from its own date till today, the total would come to exactly your current value. Because it uses actual dates, it also handles a missed month, a one-time top-up or a partial withdrawal.

A small example with six instalments (made-up NAVs):

On 5 October 2026 the NAV is ₹42, so the holding is worth 780.759 × 42 = ₹32,792. The gain is ₹2,792, an absolute return of 9.3%. The XIRR is 35.1%.

The dip in May and June helped: you got more units cheap, so your average cost is ₹38.42 a unit. But 35.1% is not a promise of anything. XIRR is a yearly rate, so a 9% gain made in a few months gets scaled up to a full year. It swings wildly early on and settles only after a few years.

Why apps show XIRR, and how to check it yourself

Real SIPs are messy. The date shifts when the 5th is a holiday, you skip a month, you add ₹20,000 from your bonus. XIRR handles all of that, which is why most apps show it.

You can check the app's number in Excel or Google Sheets:

1. In column A, put every instalment date. In column B, put the amount as a negative number (−5000), because the money is going out of your pocket.
2. In the last row, put today's date and your current value as a positive number. Any units you sold in between also go in as positive amounts on their dates.
3. Type =XIRR(B2:B8, A2:A8) with your own range and format the cell as a percentage.

It needs at least one negative and one positive value and counts a year as 365 days (see Microsoft's XIRR help page if the formula throws an error).

A small catch with SIP calculators

Most SIP calculators, ours included, turn 12% a year into 1% a month and compound monthly. Put the 5-year result of ₹4,12,432 through XIRR and you get 12.68%, not 12%. Nothing is wrong: 1% a month works out to 12.68% as a yearly compounded rate, and XIRR always reports the yearly compounded rate.

So if your app shows an XIRR of 12% and you want to project it forward, enter about 11.4% in the calculator. At 11.39% the same SIP comes to ₹4,05,557, which has an XIRR of 12.0%. Small over 5 years, bigger over 20. And don't take a good 5-year XIRR and project it for 20 years: a strong run doesn't mean 18% forever, so plan with 10–12% at most. FDs have the same quirk. A 6.5% FD with quarterly compounding has an effective yield of 6.66% on the FD calculator, so compare your XIRR with 6.66%, not 6.5%.

Why your SIP shows red in the first year

Most of your money is new. Even if the market grows a perfect 12% a year, a ₹5,000 SIP shows ₹64,047 on ₹60,000 after 12 months. That's an absolute return of only 6.7%, because the average instalment has been invested for about six and a half months. A dip of around 7% in that year is enough to wipe it out and show a loss.

The market fell and you were buying through it. Say you started a ₹10,000 SIP in November 2025 at NAV ₹100, the market slid for most of the year and the NAV ended at ₹86 a year later. Someone who put ₹1,20,000 in one go at the start would be down 14%. Your SIP is worth ₹1,17,344, down only 2.2% (XIRR −4.05%), because you bought at an average cost of ₹87.95. Those cheap units are what pay off when the market recovers.

XIRR blows up small moves. Three instalments of ₹5,000 and a 3% dip, and the app can show an XIRR of −16.9%. A 2% rise on the same SIP shows +13%. For the first few months, look at the absolute figure and ignore XIRR.

Small costs at the start. Stamp duty of 0.005% is charged on every purchase, SIP instalments included (₹0.25 on ₹5,000), and the expense ratio comes out of the NAV daily. Some apps also show value after the exit load (often about 1% in the first year). Over 10 years none of this matters, but it can tip a tiny first-year gain into a tiny loss.

The fix is boring: keep the SIP going and judge it over 3–5 years at least. Stopping a SIP because it is red in year one is like leaving a cricket match after the first over. A red patch is exactly when each instalment buys the most units.

How to read returns on a fund factsheet

• The 1, 3 and 5-year numbers are lumpsum CAGR. SEBI's advertisement rules for mutual funds require performance as CAGR for 1, 3 and 5 years and since launch, plus what a standard ₹10,000 investment would have become. For periods under a year, check the footnote for how the figure is worked out.
• Look at the benchmark row. Since February 2018, SEBI has required funds to compare themselves with the Total Return Index (TRI) version of their benchmark, which includes dividends. A fund that can't beat its TRI over 5 years isn't earning its fee, and an index fund may do the same job cheaper.
• Regular vs direct. The regular plan pays commission to a distributor, so its returns are lower than the direct plan's, often by 0.5–1.5% a year. Compare the plan you actually own.
• The "as on" date matters. These are trailing returns, measured back from one date. Just after a big rally the 1-year number looks amazing; just after a crash, awful. Where the AMC shows rolling returns, look at those instead: they show consistency, not a lucky end date. Same reason not to pick a fund for its 1-year number; go by 5-year and longer returns against the TRI.
• The SIP performance table uses XIRR. Many factsheets carry a table that assumes ₹10,000 invested on the first business day of every month and shows the result as XIRR. For a SIP investor, this is closer to your own experience than the lumpsum CAGR.

To compare funds in the same category, AMFI's fund performance page lists scheme returns side by side.

Why your XIRR won't match the fund's 5-year return

Your app says 9% XIRR, the factsheet says 14% over 5 years. Usually nothing is wrong. The factsheet shows a lumpsum CAGR between two fixed dates; yours depends on when each instalment went in.

A made-up but realistic illustration: two 3-year periods, ₹10,000 a month in a SIP, against ₹1 lakh put in once at the start.

In the first case the fund's 3-year return is zero, yet the SIP did well because it bought mostly at low prices. In the second, the SIP bought mostly after the rally. Timing did it, not the fund.

So compare your XIRR with something that had the same timing, like the fund's SIP performance table. Missed instalments, top-ups and the plan you hold also pull your number away from the factsheet.

Before tax, after tax, after inflation

The XIRR in your app is before tax. Equity fund gains are taxed only when you sell: 20% on units held 12 months or less, and 12.5% on long-term gains above ₹1.25 lakh in a tax year (section 198 of the Income-tax Act, 2025), plus 4% cess. Sell a whole SIP and the last 12 instalments count as short-term.

For our 5-year SIP worth ₹4,12,432, the last year's instalments carry a short-term gain of ₹4,047, taxed at 20.8% (₹842). The long-term gain of about ₹1.08 lakh is under the ₹1.25 lakh limit, so no tax if you have no other equity gains that year. You keep ₹4,11,590, and the post-tax XIRR slips only from 12.68% to 12.59%. With a bigger corpus the tax bite grows; selling across two tax years uses the ₹1.25 lakh exemption twice. The income tax calculator shows the rest of your tax picture.

Then there's inflation. Retail inflation was 4.82% in August 2026, and 5% is a sensible planning number. A 12.68% XIRR against 5% inflation is roughly 7.3% of real growth a year. A 6.5% FD earns a 30% slab taxpayer only about 4.5% after tax, less than inflation. More on that in SIP vs FD.

Reading your own app screen

Back to the screen from the top of this post. Most apps put four numbers on a fund's card: invested, current value, returns (in rupees and as a percentage) and XIRR. Take the 5-year SIP from the first table and read it the way the app shows it.

Invested says ₹3,00,000. That's just the total of your instalments, and it's the one number you can tie to your bank statement: 60 debits of ₹5,000. If it doesn't match, a month was missed or a top-up went in, and XIRR has already counted that on its own date. If you've sold some units, apps differ here. Some show only the cost of the units you still hold, so this figure can drop without you having lost anything.

Current value says ₹4,12,432. That's your units multiplied by the last declared NAV, which is normally the previous working day's. It changes once a day, not with every move of the Sensex, and the small "1D" change next to it is noise you can skip.

Returns says +₹1,12,432, or 37.5%. This is the absolute return from earlier. The rupee figure is nice to know. The percentage is not a rate, because it keeps climbing just because time passes. The same SIP at the same steady 12% showed only 6.7% after its first year, and will show far more than 37.5% after ten.

XIRR says 12.68%, or 12.7% after rounding. It barely moves with time if the fund keeps doing the same thing: after year one that steady SIP already had an XIRR of about 12.6%. This is the only number on the card you can put next to the FD's 6.66% effective yield or PPF's 7.1%.

So read the two percentages together, and let the SIP's age decide which one you trust. In the first year or two the money is too new and XIRR swings too much; a −15% or +35% there tells you almost nothing, so look at the absolute figure and move on. After about three years XIRR starts to mean something. That's when to hold it up against the fund's SIP performance table, its TRI benchmark, your plan (regular or direct), and roughly 5% inflation.

What the screen won't tell you is whether ₹5,000 a month is enough for what you're saving for. That's a goal question, not a returns question. Working out how much SIP it takes to reach ₹1 crore, or running the retirement calculator, will usually do more for you than another look at XIRR, and a step-up SIP is the simplest fix if the amount falls short.

Once the SIP is a few years old, checking XIRR once or twice a year is plenty. Around your increment is a good time, since that's also when you'd raise the SIP. Opening the app every day won't make it grow any faster.

Written by the Gainly team for general information, not as investment or tax advice. Rates and rules change, so check the latest before you decide; tell us if something here is out of date. Contact